
Class tiJ^X53 | 

Book.__ $ ^ 



COPYRIGHT DEPOSIT 



Saving and 
Inve£tin£> Money 



or 



Ten Lessons in Thrift 



by* 
Thomas E. Sanders 



The Thrift Publishers 
Racine, Wisconsin 







3» 






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Copyright, 1917, by Thomas E. Sander* 

(All rights reserved) 

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V 
JUN I ! i|!7 



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Preface 

THE writer has no axe to grind, no stock to 
sell, no scheme to promote. He believes 
the greatest need of the nation is more 
thrift among the people, and that this need 
will be intensified within a feneration. Exper- 
ience has taught him to he conservative, and 
he has watched with regret the loss of many 
through poor judgment in investing. 

You may not agree with all his statements, 
this does not matter. He urges wage earners 
and salaried persons to save and invest and 
suggests ways of doing these. Speculation and 
poor investments are the greatest drawbacks to 
thrift. Hence caution as to safety is the key- 
note of his counsel. 

With the firm conviction that the first step 
in National Preparedness is more thrift among 
the people, and with the hope that some may 
profit by these pages so their gains may be 
greater and their losses less, this book is sub- 
mitted to the public. 



Contents 



PREFACE. 

I THRIFT, OUR NATION'S NEED . . 9 

II ACQUIRING HABITS OF THRIFT . 29 

III PRINCIPLES OF GOOD INVEST- 

MENTS 52 

IV OWNING A HOME 67 

V REAL ESTATE MORTGAGES ... 95 

VI INDUSTRIAL STOCKS AND BONDS 110 

VII MUNICIPAL AND PUBLIC-UTILITY 

BONDS 127 

VIII RAILROAD MORTGAGES .... 146 

IX LIFE INSURANCE 163 

X CAUTIONS 180 



SAVING AND 

INVESTING 

MONEY 



Saving & Inventing Money 

THRIFT, OUR NATION'S NEED 

The most unmitigated curse of our 
country today, we are told, is the lack of 
thrift among the people. There is much 
truth in the statement. For some years 
the spendthrift has been in the saddle 
roughly riding over all thought of economy 
or sensible saving. The spender has been 
in the limelight. For a decade he has been 
made the hero of the front page, the sport- 
ing column, and the Sunday supplement. 
The person of economical habits has been 
pictured as the tight-wad. The man who 
by hard work, careful management, and 
close application to business, has ac- 
cumulated enough to live on comfortably 
has been caricatured as an old skin-flint. 
The man with a few thousand dollars in- 
vested in a prosperous business, giving 
work and opportunity for thrift to fifty or 
a hundred families, has been described as 
a heartless plutocrat trampling his fel- 

[9] 



SAVING AND INVESTING MONEY 

lows beneath his feet. The thrifty man 
has been made the jest of the vaudeville 
stage. Pulpit and press have too often 
joined the tirade against all accumulations 
of capital and helped to foment the strife. 

A decade or more of such doctrine is 
bearing its fruit. It is developing among us 
a generation of young bloods with an au- 
tomobile spending capacity along with a 
wheelbarrow earning capacity. Spending 
far beyond one's earnings is looked upon as 
a joke. The most serious admonition for 
sane spending is answered by the sporty 
spendthrift to his own satisfaction by the 
slang, "We should worry." The dangerous 
doctrine that the world owes every man 
a living has its limitations. It has been 
overworked. Many persons are beginning 
to interpret it that he should have a for- 
tune to spend and to spend now without 
regard to whether he works or not. It 
matters little to them what its source or 
its limitations, spending is their business. 
Let the other fellow worry. As long as 
they can obtain credit they will live up to 
the limit and let the other fellow worry 
about pay day. 

The world owes no man a living until he 
earns it. It will give every man of ordinary 
industry coupled with ordinary business 
sense, a living, an honest living and a 
bounteous living. It will not give him a 
living of unbridled license, licentiousness, 
and spendthrift shiftlessness, without ex- 
[ 10] 



THRIFT, OUR NATION'S NEED 

acting its penalty. It is best for the 
spendthrift himself that it does not. The 
penalty would be too great. His worth- 
less career would be inevitably shortened. 

If the great devastating world war calls 
a halt in American extravagance, it will 
have done us a worthy turn even if at a 
fearful cost to the world. Many men of 
excellent financial judgment predict that 
the decade following its close will bring 
unprecedented demands for capital, that 
prices will continue to soar, interest rates 
increase even above anything known in 
the past half century. All the rosy pre- 
dictions may not come true. Should even 
a small part of these be realized, it will 
make it more important than ever that we 
American people, for our Nation's sake as 
well as for our own individual good, must 
harken back to some of the thrifty ways 
that characterized our country of a genera- 
tion ago. If we are to be the banker for 
the world we must prepare our cash re- 
serve for the undertaking. 

Thrift seeks to earn and to save. 
Economy manages only. Frugality saves. 
But thrift is more than these. Thrift 
earns and saves for a wholesome purpose 
at a fitting time. Thrift is not parsimony. 
The thrifty man is never a miser. The 
miser hides his money. The thrifty man 
puts his money to work. The thrifty man 
earns, plans, manages and saves that he 
may spend and enjoy sanely and efficient- 

[ 11 ] 



SAVING AND INVESTING MONEY 

ly. Thrift is a virtue. It enables a man 
to help, not only himself but others. In 
times of stress it is but a short step from 
the spendthrift to the public pauper. The 
thrifty man asks no aid and he is rock of 
refuge to the reckless spendthrift in times 
of trouble. 

A thirty day lay off means too often a 
public soup house. Without a dollar re- 
serve, or a thought of the morrow, many 
men who have had a steady job for years 
must seek municipal aid in a month from 
the time the shop door is shut. Listen to 
the doleful cry for help at each shadow of 
panic, then see the shameful waste of this 
same man's first monthly wages after he 
gets a new job. Listen to the cry of hard 
times on the street, then visit the movies, 
the bar room, or the tobacco stand, and see 
whom you find there. We are as a people 
less in need of greater earning capacity 
than we are of more sense in our spending 
capacity. 

New capital to the individual is nothing 
but the margin between income and ex- 
penditure. New capital to the nation is the 
sum of the margins between what the peo- 
ple of the nation earn and what they spend. 
A nation can accumulate new capital only 
by saving this margin. The more people 
who have such a margin the more the 
nation's capital increases. 

The savings of Europe are being burned 
up in the gigantic world war. If our 
[ 12 l 



THRIFT, OUR NATION'S NEED 

people can accumulate the new capital 
needed to do the world's business we shall 
soon enter one of the most prosperous 
periods any nation of the world's history 
has entered. The question is, will the 
American people rise to their opportunity ? 
Can we get the masses of the people to turn 
from shameless waste and profligate spend- 
ing to sanity and saving? The world has 
never offered any nation greater oppor- 
tunity for material advancement, with the 
influence and prestige that goes with it, 
than it will offer us in the next quarter of 
a century. The burdens of the world's 
finance will fall upon us. If we can furnish 
the capital and play well our part, the 
financial center of the world will cross the 
Atlantic to our shores. Future national 
debts will then be reckoned and paid in 
standards based upon our own American 
dollar. 

The burdens of war have forced upon 
the nations of Europe the necessity of 
economy. Extravagance has been prohib- 
ited. Forced economy has been the 
rule. If newspaper accounts are correct 
the school boys of Berlin have been taught 
daily during the war the commandments 
of thrift. 

1. Everybody must save. Only by 
everybody saving, can Germany's supplies 
hold out. 

2. Waste no food, not even the most 
unimportant. 

[ 13 ] 



SAVING AND INVESTING MONEY 

3. Take time for eating and chew your 
food well. 

4. Avoid all eating between meals. 

5. Eat rye bread instead of wheat, and 
be exceedingly economical with every scrap 
of it. 

6. Be saving of butter. Eat cheese, 
fruit sauce, and marmalade instead of 
butter. 

7. Eat abundantly of fresh vegetables 
so as to save meat, fats and butter. 

8. Cook potatoes with the skins on 
them for economy sake. 

9. Abstain from sweets and send them 
to sustain the soldiers at the front. 

10. Each individual must contribute 
his modest share and practice self-sacri- 
fice for the common good. 

Our country is not yet in the throes of 
war. We are not forced to be economical. 
No laws compel us to habits of thrift save 
those of reason and common sense. Be- 
ginning with the second year of the war 
the flood of gold to our coffers has tempted 
us to greater extravagance. The tide 
must turn again at no very distant day. 
The world needs capital. The demand of 
the times is such that the welfare of our 
country as well as our own individual wel- 
fare should call us to less extravagance 
and more economy. One of the first de- 
mands of preparedness to meet a foreign 
foe is thrifty habits among our popula- 
[14] 



THRIFT, OUR NATION'S NEED 

tion which will give a reserve of means to 
stand the stress of war. 

The people of France for a hundred 
years have been models of thrift. The 
masses saved money. This enabled France 
in the early seventies to pay her gigantic 
war indemnity to Germany months before 
it was due. The thrift of the French peo- 
ple has enabled them to do so marvelous- 
ly well their part in the great world war 
now raging. Regardless of the final re- 
sults, France has shown herself not the 
decadent France she was supposed to be 
a few decades ago. 

If perils beset our nation and war 
should come — though hoping and pray- 
ing that such shall never be— our success 
or failure will depend as much upon the 
accumulated wealth and capital and thrifty 
habits of our common people as upon the 
deeds of daring and bravery of our citizen 
soldiers. 

There has been a tremendous increase 
in the cost of living in the past twenty 
years. But wages and opportunity have 
also increased. There never was a time 
when more opportunities were at hand. 
The same pluck and grit and health and 
hustle will enable the average fifteen year 
old boy of today to earn a dollar now 
where he could have earned a dime twen- 
ty years ago. The high cost of living in 
the present day is largely the cost of liv- 

115] 



SAVING AND INVESTING MONEY 

ing high. It is the standard of living that 
has increased the cost. Drop to the stand- 
ards of twenty years ago and you can live 
on nearly the same amount now as then. 
Take your present income, drop to the 
standard of living you had twenty years 
ago, and your increase of income will more 
than balance the increased cost of the es- 
sential things you must have. 

Each young couple now begins married 
life on a more costly standard than that 
now maintained by the parents. Home, 
furniture, furnishings, appliances, are all 
more up to date in the new home estab- 
lished by the bride than in her mother's 
home. Haviland takes the place of the 
plainer dishes, silver ware the steel knives 
and forks, cut glass, Persian rugs, and oth- 
er costly furnishings to match, cost from 
three to five times as much as the furni- 
ture her mother now uses and is contented 
with. It is rare indeed that the daughter 
begins the new home on a less expensive 
plane than that of her mother's home. 
Too often these same rich furnishings are 
bought at exorbitant prices on the partial 
payment plan. Two or three years of the 
husband's time is mortgaged at the very 
beginning of married life, not that they 
may live well, but that they may live more 
luxuriantly than their parents have ever 
attained. 

As individuals and as a nation there 
should be a wholesome fear of unworthy 

[16] 



THRIFT, OUR NATION'S NEED 

and unnecessary debt. There is a vast 
difference between an investment debt and 
a debt representing useless expenditure. 
One is productive capital. It is not gone 
forever but is hired out. The other is 
gone forever. Its profits must return in 
pleasure. 

A professional man of high repute in 
academic circles was the topic of conver- 
sation in a local market in a college town. 
"Yes," said the proprietor, "they tell me 
he is smart. He is always talking at the 
social centers and telling us how to do this 
and that. He discusses glibly the finances 
of the national government and big corpo- 
rations. He has owed me fifty dollars for 
over two years and will not pay it. There 
are a dozen stores in this town who will 
not give him credit. He has had a salary 
of over two thousand a year for the past 
ten years, but does not have the credit 
among those that know him that many a 
laboring man earning ten dollars a week 
has. The laborer may have a family of 
six while the professor has but three, but 
the former is the better credit risk. He 
may be smart but he will not pay his 
debts." It is too bad that so many men 
drawing good salaries are so careless in 
money matters that their credit is ques- 
tionable in their home town. 

Ella Wheeler Wilcox in one of her 
splendid talks, speaking of the "Shame of 
Debt" says: "To be careless, indifferent 

[ 17 ] 



SAVING AND INVESTING MONEY 

and thoughtless in these matters, to post- 
pone payment when you could lessen your 
indebtedness, all savors of a criminal 
tendency of mind. You may as well enter 
the house of a tradesman or merchant 
and take money from his pockets while he 
sleeps, as to enter his place of business 
and take what you desire and refuse or 
neglect to pay your bills. 

"If you look about you, you will see 
that not only the respect of their fellow- 
men, but good luck and good fortune fol- 
low the people who have high and sensi- 
ble ideals in the matter of debt. There is 
no more admirable reputation to merit 
than that of being honorable and con- 
scientious in money obligations. Teach 
your children this and teach them that it 
is a disgrace to neglect a payment until it 
calls forth a dun. Be ashamed of debt, but 
do not be ashamed to wear last year's 
garment or to be obscure socially if this is 
necessary to clear yourself from debt. 

"Brush your old clothes well and walk 
forth proudly, happy in the consciousness 
that you can look your fellowmen bravely 
in the eyes and that you have earned the 
reputation of paying your bills promptly." 

All the great empires of the past were 
thrifty. Germany, the wonder of the 
world, acknowledged so by both her 
friends and enemies in this world struggle, 
has been a nation of unexcelled thrift. For 
more than a generation her people have 

[ 18 ] 



THRIFT, OUR NATION'S NEED 

husbanded their resources. They have 
lived within their means. They have 
worked, saved and managed. They have 
invested in the securities of their own 
country and whether we sympathize with 
them or hate them, we must admire their 
thrift. 

Rome was built upon thrift, and when 
extravagance took its place the empire 
crumbled and fell. No nation has long 
endured after its people have grown ex- 
travagant. Bountiful undeveloped re- 
sources, great strides into new epochs of 
civilization await us in the next half a 
century. But to win these laurels the 
American people must conserve the energy 
engendered by our pioneer fathers in con- 
quering the primeval forest and couple 
with it the thrifty habits of a former 
generation. 

Thrift puts stamina, courage, ambition 
and energy in a man. Thrift makes for 
good citizenship. Thrift leads to better 
things. Thrift obeys the law. Anarchists 
are never men or women of thrifty habits. 
Anarchists are recruited from those who 
fail financially. Reckless, dissolute, lack- 
ing in business judgment, they become 
sour and vindictive, envious of those who 
find pleasure in thrift. Could you develop 
habits of industry and thrift in each man 
until each anarchist owned a home of his 
own, he would be no longer an anarchist. 
Anarchy is bred and born in and among 

[19 1 



SAVING AND INVESTING MONEY 

the unsuccessful. Shiftless and profligate, 
they turn against those who have better 
business judgment. Their own shortsight- 
edness in business matters is charged to 
the greed and dishonesty of those who 
succeed. They grow bitter because they 
lack business sense. Once get them to 
taste the pleasure of thrift and the bit- 
terness against their fellow man vanishes. 
There is much good in socialism. It 
has pointed the way to many a worthy re- 
form. Many of its messages of today, 
vague as some of them may seem, must 
prevail eventually. Could w r e instill habits 
of thrift early in life in every man, social- 
ism would be relieved of any dangerous 
rabid type. The only danger in socialism 
comes from the radical few who will not 
live on what they can earn. This element 
seeks to confiscate the property of others, 
not so much for the common good, as in 
the hope that they may secure some of 
the spoils that would come from the re- 
distribution of the property of the world. 
This radical and dangerous wing of the 
Socialist party is constantly recruited from 
reckless spendthrifts. These men have 
never learned to feel the uplifting thrill of 
the thrifty man. Instead of experiencing 
the joy of earning and saving, they feed 
on the envy of those who have earned and 
saved. Failing to make good, they at- 
tribute the cause of failure to others 
rather than to themselves. Disgruntled, 

[ 20 ] 



THRIFT, OUR NATION'S NEED 

they clamor for change, hoping thereby 
to get a new deal regardless of whether 
it is a square deal or not. They feel that 
their lot can be little worse and they risk 
pi gambler's chance of it being better. 
V Many of the principles of socialism 
/ would be accepted by thinking persons 
everywhere, were it not for the yappings 
of the shiftless hangers-on that follow its 
parades and march under its banner. This 
shiftless half-vagabond type of men and 
women, if given their entire share of the 
distributed wealth of the nation could not 
take care of it six months. These, the 
easiest gulled of the most gullible, are the 
loudest talkers on the good's box corner. 
With fiery eloquence and senseless logic 
they proclaim how the nation's business 
and finance should be run w T hile they can 
not buy themselves a decent bed in a re- 
spectable hotel. 

No man is free who is not master of 
himself. He must live within his earning 
power. He must not create desires with- 
out first creating capacity to legitimately 
gratify them. He lets increased expenses 
follow promotion instead of going before. 
He does not mortgage the future for fleet- 
ing present pleasure. Neither does he 
grow morose or envious if he can not se- 
cure these same fleeting pleasures. He 
has disciplined himself until there is no 
longer pleasure in things unpaid for and 
beyond his means. You pity the child 

[ 21 ] 



SAVING AND INVESTING MONEY 

that can not resist spending his last penny 
for the tempting sweets. Yet many men 
and women are only as children, in finance. 
Like Ben Franklin, the boy, they pay too 
much for the whistle. Unlike Benjamin 
Franklin, the man, they fail to count the 
cost before they purchase. 

Young man, let this homely truth sink 
deep. Unless you learn early to live on 
what you earn, your nose will be on the 
financial grindstone most of your life. 
Then too, unless you become a hardened 
dead-beat, the grinding will become more 
painful each year. Your most frequent 
caller will be the bill collector. He will be 
a persistent, undesirable caller. He comes, 
however, at your own invitation. There is 
but one way to get rid of his calls and that 
is to live within your means and pay your 
bills promptly. 

To be thrifty, you must be able to work 
more than twelve months in the year. The 
task is easy if your judgment is good. 
Suppose you make fifteen dollars a week. 
If you can save two dollars of this for the 
saving bank, you can save something over 
a hundred dollars a year. This invested 
at six per cent will enable you to work 
two days and a half extra the second 
year. The third year you can work a 
week extra by using your savings. In a 
few years — count it up and you will be 
surprised how short the time you can be 
working the equivalent of thirteen months 

[22 ] 



THRIFT, OUR NATION'S NEED 

in a year. A saving of two dollars a week 
for investment adds the equivalent of a 
few days' work. You will never accumu- 
late much, or become thoroughly inde- 
pendent, unless you put your savings to 
work for you. Your savings, wisely in- 
vested, become your willing slave, adding 
their labor to yours. Not only do they 
earn for you, but they help the needy 
everywhere by furnishing employment to 
others. 

No salaried man ever grew rich from 
salary alone. Only by saving and wisely 
investing can he become independent of 
his salary. Money will work. It does the 
business of the world. It is a question 
whether you will set it to working for 
you or blow it in to work for the other 
fellow. 

The thrifty man always has credit. He 
is never on the merchant's black list. His 
check is as good as was ever John Wana- 
maker's. It draws its face value and that 
is all Wanamaker's ever did. The thrifty 
man walks down the street facing the 
world without flinching for he owes not 
any man. Others may spin by in unpaid 
for autos. He envies them not. He takes 
pride that he is made of sterner stuff. His 
keenest pleasure comes from his inner 
consciousness that he is a free man. He 
can speak his mind freely. No one holds 
a mortgage club over his head. He feels 
a thrill of pride the spendthrift can not 

[ 23 ] 



SAVING AND INVESTING MONEY 

appreciate. He has more courage, just as 
an honest man has more courage than a 
criminal. He has no antipathy for the 
auto. He envies not the golf oufit or the 
big banquet hall to those who can afford 
them. But he has a supreme contempt for 
the social climber who mortgages the fu- 
ture for present social prestige. Who, but 
the profligate and the spendthrift, will 
think for a minute that the thrifty man 
has not the more genuine and higher 
pleasure ? 

The thrifty man has a deeper, keener, 
more genuine, interest in public affairs. 
One curse of our country has been that 
too many of our public officials have been 
either the corrupt politician or the vague 
idealist and the spendthrift. Often men 
unable to pay their legitimate grocery bills 
harangue the people on how to run the 
government, or sit as high officials dispens- 
ing justice. The biggest, the loudest, the 
longest talker of boyhood memory dis- 
cussed the tariff, and national finance 
while his wife washed the neighbor's 
clothes and his grocery bills went unpaid. 
His long talking, like the long loose talk 
of far too many, brought him political 
preference. The people felt they were 
surely abused and this champion of their 
rights would surely give them justice. 
Forgetting that he had never been able to 
support his family in decency they elected 
him to an administrative office handling 
[24] 



THRIFT, OUR NATION'S NEED 

thousands of dollars. He defaulted, leav- 
ing his bondsmen to pay the deficit. Even 
his legal expenditures were often poor 
business judgment. His type is too com- 
mon. Our officials should be honest men, 
and in addition to this, men who have 
shown by their own business ability that 
they have judgment and sense of propor- 
tion. The man who does not have business 
sense enough to support his family in 
decency is not apt to possess qualities to 
handle big public problems. 

The man who has not learned to live 
within his income by the time he is twen- 
ty-five, seldom accumulates much. The 
man who has not started a nest egg by 
the time he is thirty is apt to die poor. 
The man who can not handle his own busi- 
ness with some degree of success is a 
poor man to trust with the business of the 
public. 

The time is hastening when thrift will 
not be a term of reproach but a badge of 
honor. The spendthrift will be dethroned 
from public affairs and front page notorie- 
ty. The ripened fruits of his training will 
be bitter regrets at lost opportunities. The 
man who has lived comfortably, but within 
his means, laying by a little to invest se- 
curely for a rainy day will come into his 
own. 

The indications are that the spendthrift 
has had his inning. The world war has 
called time. The man of thrift and econ- 

[ 25 



SAVING AND INVESTING MONEY 

omy is coming to the bat. If he strikes 
as he should, he will make a home run. 
The future of our nation hangs in a degree 
upon the result. Opportunity calls to our 
nation as never before in a generation. 
Will the American people hear and heed 
that call? 
They will. 

As these pages go to press our country 
is entering the Great World Drama. After 
reason and remonstrance, after patience 
and prayer, to no avail, we are forced to 
defend our rights on the high seas, or pass 
under the yoke of Prussian militarism. No 
one with red blood in his veins can read the 
Kaiser's orders to us of January last with- 
out tingling with indignation. The same 
iron heel of Prussian arrogance that has 
driven so many of her subjects to our 
shores in the past decades now forces our 
own country to draw the sword to prevent 
the world becoming permanently one gi- 
gantic military camp divided into two 
fighting factions. Prussia is forcing us to 
arm in self-defense. World democracy is 
being put to the test. America must strike 
now and end militarism or pass under the 
yoke later. 

The die is cast. There can be no retreat. 
Every American heart beats true and 
loyal. We shall pay the price in blood 
and money. We shall do our part to usher 
in a Great German Republic of the peo- 

[26] 



THRIFT, OUR NATION'S NEED 

pie, for the people, and by the people. The 
hand writing is upon the wall. The 
Kaiser's Crown and the things which it 
symbolizes must be crushed. We have 
taken up arms in the defense of Civiliza- 
tion and the inalienable rights of the In- 
dividual. 

These new developments since these 
pages were placed in the printer's hands 
have emphasized more and more the para- 
mount need of thrift among our people. 
Prices will continue to soar, wages will in- 
crease, new demands for money multiply. 
State and government bonds will pay high- 
er rates of interest, and become more and 
more attractive to investors large and 
small. These bonds are as safe as civili- 
zation itself. There will be no repudiation 
of America's debts. Other bonds and in- 
vestments will lead the way in the up- 
ward swing. When the war is over and 
the Hohenzollerns and the Romanoffs and 
others whose policies are the same are in 
the scrap heap, the world will move for- 
ward by leaps and bounds. 

Never in the world's history was there 
more need of thrift and economy on the 
part of a great people than is before us to- 
day. Save. Invest wisely and well. 
America must now finance the world. 
This critical period demands thrift from 
every loyal citizen. The advise of these 
pages has been intensified by the rapid 
strides of the last sixty days. Each day 

[27 ] 



SAVING AND INVESTING MONEY 

has emphasized more and more the necessi- 
ty of thrift among the masses as the Third 
and fundamental line of national defense 
to back our First and Second lines, the 
Navy and the Army. 



28 



ACQUIRING HABITS OF THRIFT 

The thrift habit is essential to success. 
To earn a little more than you spend and 
to invest this margin wisely and well is the 
big problem. The habit of regular saving 
counts for much. The amount may vary 
with your income from time to time, but 
the certainty that something will be saved 
and invested against the needs of a rainy 
day, regularly, gives strength of character. 
Think thrift, talk thrift, practice thrift, 
and you will grow thrifty. 

Get out of your mind that thrift means 
penury, self -starvation, dull routine, abject 
want. Thrift means pleasure, content, 
happiness, success, self -discipline, a bright 
outlook for the future. Thrift puts go in 
a man, quickens his step, gives him a 
keener eye, enables him to hold his head 
up and to look the whole world in the face 
without flinching. It is the spendthrift 
who sooner or later loses out. Two courses 
are open to him. He either grows hardened 
to the opinions of others and sets out to 
dead-beat his way regardless of conse- 
quences, else he grows timid and slinking, 
fearing the ring of the door bell for fear 
it is a bill collector. The spendthrift may 
flourish for a while on nerve and bravado, 

[ 29 1 



SAVING AND INVESTING MONEY 

but his day is short and the final reckon- 
ing is seldom in his favor. The thrifty 
person may be misjudged. In early life 
he may be pitied for his supposed penury. 
He comes into his own later. Frugal habits 
and good judgment prevail and soon the 
thoughtless and the gullible begin to envy 
his luck. Those who are shiftless always 
attribute the thrifty man's success to luck. 
This is in harmony with their short- 
sightedness on all money matters. Victor 
Hugo says, "Above all, teach your children 
to save : economy is the sure foundation of 
all virtues." 

James J. Hill, the late Empire Builder 
of the Great Northwest, expresses a terse 
truth when he says, "If you want to know 
whether you are destined to be a success 
or failure in life, you can easily find out. 
The test is simple and it is infallible. Are 
you able to save money ? If not, drop out. 
You will lose. You may think not, but you 
will lose as sure as you live. The seed of 
success is not in you." 

The secret of thrift lies in two things, 
earning more than you spend and invest- 
ing wisely and regularly part of your earn- 
ings. There is pleasure in planning what a 
quarter will do. There is virtue in a well 
spent dollar. This virtue reacts on and 
strengthens the character of the spender. 
If you pay too much for the whistle, you 
should rue it. You are a cheap skate when 
you spend a dollar and get only fifty cents 

[ 30 1 



ACQUIRE HABITS OF THRIFT 

worth of value out of it. You are a still 
cheaper skate when you spend a dollar and 
get no permanent good in return. You are 
the cheapest of all skates when you spend 
a dollar and make yourself and others 
worse by the spending. Money is your serv- 
ant, a willing servant to do your bidding. 
Money will help you work. When you put 
it to ignoble work you and not the money 
are to blame. You and not the money will 
reap the ignoble harvest in a weakened 
character, a distorted view of life, in un- 
worthy aspirations, a butter-fly existence, 
and a wrong example to others. 

Every child should be taught thrift in 
the home. The school should re-enforce 
and emphasize this teaching. Thrift is 
easily taught if good examples are set. 
Thrift is difficult to teach if there are no 
worthy examples in the home and com- 
munity to follow. 

Industry and thrift go hand in hand. 
The child of two, taught to straighten the 
rug w r hich he has kicked up with his pat- 
tering feet, is getting a lesson in thrift. 
The child taught each day to pick up the 
litter he makes on the floor and to replace 
his toys before retiring for the night is 
getting valuable lessons in thrift. He is 
being taught the proper care of the things 
he uses, avoiding waste and abuse of 
privilege. 

Early in life the child should be taught 
how money is earned honestly and how 

[31 ] 



SAVING AND INVESTING MONEY 

to spend it honestly. If his allowance is 
an out and out gift, he should be led early 
to understand its source and its limita- 
tions. He should spend from this allow- 
ance, and his spending should be confined 
to it. The allowance may be much or lit- 
tle depending upon the family income. If 
he squanders his share, do not replenish 
his funds. Let him feel the loss and profit 
by it. If he borrows, he should repay it 
with interest out of his next allowance. 
Lack of such teaching has laid the foun- 
dation of many a reckless career. 

Kindness of the father and indulgence 
in money has spoiled many a promising 
boy and brought both father and boy to 
tears of regret in later life. Indulgence 
in early life is the foundation of many 
reckless spendthrifts later. Teach the child 
to be generous, but teach him to be gener- 
ous out of his own allowance or out of his 
own earnings and not generous in pulling 
his father's leg when his own funds run 
low. 

Every child should be taught to earn 
and to save these earnings for a definite 
and suitable purpose. Going to school 
should be the biggest, best, and most all- 
absorbing, business of every child under 
sixteen. The child should be taught to 
earn his own books, pencils, tablets, and 
paper after he is ten, part of these before 
that age. With proper encouragement he 
will be delighted to do it, and in the doing 

[32 ] 



ACQUIRE HABITS OF THRIFT 

will be learning one of the greatest les- 
sons of life. The books themselves can 
teach him no lessons so vital as the les- 
sons in thrift in saving for their purchase. 
A book earned by a boy's own labor and 
saving is a priceless possession. Only 
those who have felt the thrill of pride as 
he opens its new clean pages for the first 
time and catches the odor of new print can 
appreciate these words. Only those who 
have enjoyed such a luxury know the keen 
delight of such an investment. 

Teach the child to forego the fleeting 
pleasure of the present moment and save 
his funds for more permanent purposes. 
The boy who resists the pop-corn and 
candy today that he may save fifty cents 
for the circus next summer, is on the 
right road. It may be the circus itself is 
worthless, but the habit of saving for a 
definite future purpose is priceless. This 
habit will pay him golden dividends in after 
life and bring him pleasures unknown to 
his profligate comrade who blows in his 
pile with neither fore-thought nor after- 
thought. Saving in summer to buy a sled 
in winter, saving in winter to buy a bicycle 
in summer, saving all spring for a camp- 
ing trip in the fall, saving and investing 
to pay his way in high school or for a col- 
lege course, these are worthy all. It is the 
boy who can not pass the candy shop or 
the picture show without spending his last 
cent, the boy who can not resist the slight- 

[33] 



SAVING AND INVESTING MONEY 

est temptation to blow himself that is in 
danger. It is only a short step for such a 
boy until he becomes a parasite. He duns 
his father, cajoles his mother, begs his 
sister, and bullies his brother for extras. 
He is always hard up. He is apt to shun 
honest tasks at fair returns to get the 
jobs with unearned tips as a side line. He 
may be bright and attractive. He may be 
a favorite of the grown-ups who hasten 
his downfall by being over-indulgent with 
him. He is apt to develop into the "slick 
duck" classification. Everybody likes 
him, nobody trusts him, and he is always 
on the ragged edge of insolvency, borrow- 
ing continually from Peter to pay Paul. 
Parents should take their children into 
their financial confidence. The family 
budget, its sources, its size, and its limita- 
tions are topics for family counsel and dis- 
cussion. It will not make the boy sordid 
and grasping. It will make him sane and 
sensible in money matters. A sensible boy 
of eight whose father held a high judicial 
office at good salary explained that he could 
not have certain things for Christmas be- 
cause his father was not able to afford 
them. When reminded that a companion 
whose father was far less prosperous had 
these things and others more expensive 
he replied, "Yes, and he lives in a rented 
house and his father has a big mortgage 
on his farm, too." This eight year old was 
learning business judgment and proper 
[34] 



ACQUIRE HABITS OF THRIFT 

valuation. He is just as happy now fifteen 
years later. He grew into manhood with 
proper business sense and perspective. He 
is a far greater asset to himself and his 
country than the boy trained to extrava- 
gant habits far beyond his legitimate earn- 
ing capacity. It is not a virtue to buy and 
spend and enjoy those things of the pres- 
ent fleeting time regardless of pay day or 
future consequences. One of these boys 
had learned to mortgage the future for 
present passing pleasure, the other to en- 
joy the things he was able to afford and to 
pass without regret or envy those things 
which were beyond his financial reach. 
The Scriptural doctrine that each day 
should provide for itself has been over- 
worked by the spendthrift. He quotes it 
in season and out of season to bolster up 
his own remaining qualms of conscience. 
It might be well for him to read Timothy 
where he declares, "But if any provide 
not for his own, and especially for those 
of his own house, he hath denied the faith, 
and is worse than an infidel." 

The child trained in the family counsel 
to consider the family exchequer will grow 
into a man who will provide, and provide 
abundantly for his own household. He 
will more likely grow into a man also who 
will be able and willing to make it possi- 
ble for others to provide for their own 
households. The man who by thrift and 
industry is able to build up a business 

[35 ] 



SAVING AND INVESTING MONEY 

whereby fifty men may earn an honest liv- 
ing and support and bring up fifty more 
thrifty families is a benefactor to the 
state. Let sapless spendthrifts boast of 
their generosity and good time if they will, 
real patriots and sensible men know how 
insignificant they are when measured by 
the nation's greatest need. 

Men are poor, not so much from lack 
of earning capacity, as from poor judg- 
ment in spending capacity. Children are 
taught to spend, to spend quickly and in- 
judiciously for fear they may grow grasp- 
ing. The child of four is hurried off to the 
store to spend the newly acquired dime. 
He is given no time to consider what he 
may buy. He wants to spend that dime. 
His parents are bent on him doing the 
same thing forthwith and without delay. 
Any thing that catches his passing fancy 
will do. Parents forget that one of the 
greatest pleasures of life comes from an- 
ticipation. 

From earliest years boys and girls 
should be taught to earn and to invest. 
If a boy is on the farm, give him an inter- 
est in the pigs or a patch of corn. If a 
girl is on the farm, give her an interest 
in the eggs or a part of the garden. If 
the farmer boy gets for his very own, one 
pig out of twenty that he cares for, he is 
more likely to feed the pigs better and also 
pick up a fund of useful knowledge of dif- 
ferent breeds and their value. If the 
136] 



ACQUIRE HABITS OF THRIFT 

farmer girl gets one egg out of each dozen, 
tending chickens will become a pleasure. 
The boy in town that gets half the radishes 
he can raise and sell off of a bed in the 
garden will work the whole garden better. 
The paper boy, the errand boy, the mes- 
senger boy, and the girl given a chance 
and a share in their own earnings gets 
more genuine pleasure and profit in this 
saving than from the most liberal allow- 
ance. Let these earners spend their own 
income. Teach them to use it and invest it 
well. Praise the boy who can earn enough 
to buy his books for the year on the day 
school opens. Examine and admire these 
books as something worth your time and 
attention. If you want your child to ap- 
preciate a good investment take time to ex- 
amine and comment on it. 

It is just as easy to train children to 
habits of earning and thrift as it is to 
train them to expensive luxury, and spend- 
thrift shiftlessness. The spendthrift child 
and the spendthrift young man or young 
woman is nearly always due to the teach- 
ing and example of parents, or rather the 
lack of teaching and example of thrifty 
habits and industry. The thrifty child, 
like the thrifty man, soon develops a 
keener self-respect. He is happier far 
than the person of expensive habits al- 
ways financially broke. 

In men and women it is the habit of 
regular, systematic, thoughtful saving and 

[37] 



SAVING AND INVESTING MONEY 

investing that counts, rather than the 
amount saved. Saving a dollar to help pay 
for a home, ought and does bring a keener 
pleasure to a well balanced man or woman, 
than blowing in one they can ill afford to 
do without to see a low class vaudeville. 
The spendthrift may find this hard to be- 
lieve, just as the hardened sinner can not 
know or appreciate the higher aspirations 
or spirituality of the saint. The trouble 
with us is, that for the past decade or two 
the spendthrift has been in the limelight, 
advertising his self -assumed virtues until 
too many of us think he and his bunch are 
the only happy people on earth. 

From the time you are twenty until you 
are fifty you should invest regularly. Buy 
life insurance, buy good income earning 
property, buy building and loan stock, buy 
good mortgages and high grade bonds, go 
into debt reasonably in a good investment 
and save to pay out. Few happier mo- 
ments should come into a man's life than 
when he draws his savings from the bank 
to make final payment on a good invest- 
ment. The man who doubts this state- 
ment is one who has never had the pleas- 
ure of such an experience. 

What keener pleasure can two chess 
players get in planning the next move in 
a close game, than a man and his wife 
really interested in making a thrifty home, 
get from planning how to divide and invest 

[ 38 ] 



ACQUIRE HABITS OF THRIFT 

the salary for the month so as to bring 
the most wholesome returns for the pres- 
ent and the future? 

If you have the habit of saving firmly 
fixed, you will find a way. Seek new ways 
of increasing your income. Plan for lit- 
tle economies rather than decrease your 
monthly investments, before you are fifty. 
Should misfortunes come, and they will, 
draw on your resources as you would for 
some new investment and recoupe as soon 
as the tide turns again in your favor. Be- 
low T are hints that others have found help- 
ful. If you have the saving habit, you will 
find w r ays of your own quite as good as 
any of these. If you do not have the 
habit these hints may help you. 

Quit asking yourself how much you 
spend in a year. Ask yourself instead, 
how much you save. Then ask yourself 
how much you can save out of what you 
spend uselessly. How 7 much can you save 
and yet be healthier, heartier and happier ? 

Do you smoke ? Invest the same amount 
in six percent bonds, compounded semi- 
annually from the time your oldest boy is 
born and it will pay his way through the 
state university of your state, by the time 
he is old enough to attend. 

Do you drink? If you drink much, may 
the Lord pity you and your family, too. 
This is not a temperance lecture but here 
is the food value of two drinks of beer a 

[ 39 1 



SAVING AND INVESTING MONEY 

day at the bar for one year. Figure it out 
for yourself at today's market price and 
see if it is right : 

A barrel of flour. 

Half a bushel of beans. 

Three bushels of potatoes. 

A bushel of sweet potatoes. 

Ten pounds of coffee. 

Fifty pounds of sugar. 

Twenty pounds of rice. 

Ten pounds of spaghetti. 

Ten pounds of cheese. 

Twenty pounds of butter. 

Two ten pound hams. 

A ten pound slice of breakfast bacon. 

A twelve pound turkey. 

If you find it right, count how many 
meals for your family this will make. 
You will find why many a man has his 
nose eternally on the financial grindstone. 

Have you the moving picture fever bad- 
ly? It is little better on the health and 
morals than the beer habit and almost as 
expensive. If you and your family have 
the movie habit, count up what you might 
save in a year, by substituting more home 
comforts. 

Run your list of personal habits of 
spending. See how much you could prune 
each of these, without any real loss, to 
build up your habit of thrift. Rest as- 
sured that when once you acquire a habit 
of thrift it will bring you more real genu- 
[ 40 



ACQUIRE HABITS OF THRIFT 

ine pleasure than any of those you must 
prune or abandon. 

Some men put aside every dime that 
comes into their hands or its equivalent 
to go into the savings bank. It will sur- 
prise you how the fund will grow. Some 
save each nickel for investment. Some the 
quarter or the half dollar. Try saving 
each of a certain coin that passes through 
your hands in twelve months and see what 
a nest egg it makes for a saving account. 

One father places a dollar the first of 
each month to the credit of each of his 
children. This is known as their college 
fund and is dedicated to their college ex- 
pense when they are ready to go to col- 
lege. If the child does not go to college 
when grown, the fund is to become his at 
the age of twenty-five to help start him 
in business. Whenever a fund of one hun- 
dred dollars accumulates to the credit of 
any child, that amount is withdrawn and 
invested in a street improvement bond. 
The interest is then placed in the savings 
bank each six months to hasten the ac- 
cumulation of the next hundred. Each 
child will have a good start toward his col- 
lege fund by the time he is ready to go. 
The child trained by such habits is sure 
to find a way of making the balance dur- 
ing his college course or have but a small 
debt to repay by the time he graduates. 

Another father has taken a twenty year 
endowment life insurance policy on his 

[41 ] 



SAVING AND INVESTING MONEY 

own life in favor of the child, on or near 
the child's first birthday. This one thou- 
sand dollars due and payable when the 
child is twenty-one years old is a college 
fund or business fund for the child. 
Should the father die before the child is 
of age, the thousand dollars becomes due. 
Provision is made for the investment of 
this money until the child is twenty-one 
years old at which time it may be applied 
to its original purpose. Many similar life 
insurance plans may be worked out em- 
bodying the same principle in almost any 
of the old line companies, whose policies 
are as safe as your strongest local bank. 
It makes it sure that each child may have 
something for a college course or to begin 
business and at a cost in reach of almost 
any healthy able-bodied man. 

One boy bought a lot when he was twelve 
years old. He paid twenty-five cents a 
week on it. It was paid out when he was 
about nineteen years old. He earned every 
cent of the money by his own efforts, 
and took great pleasure in it. It lay in the 
university addition of his home town. He 
was married at the age of twenty-five and 
sold the lot for fifteen hundred dollars. 
Far more profitable to him than the profits 
on the lot was the thrifty habits his sav- 
ing instilled. 

One family has a schedule of penalties 
for each neglect of duty. This money is 
placed in the family emergency fund and 

[42 ] 



ACQUIRE HABITS OF THRIFT 

deposited regularly in the savings bank, y 
the first of each month. If duties are ne- 
glected, can you find a better penance or 
put that penance to a better use ? 

Some families make up a budget the 
first of each month. Each member has 
some particular duty to look after. At the J 
end of the month each department is cred- 
ited with any saving in that department 
and the total savings is deposited in the 
bank to draw interest. Each member of 
the family votes the plan a success. The 
planning to save is fun. 

One family has the above plan but the 
funds are placed in the bank for an outing 
trip each summer. 

Another family used the savings from a 
similar plan to buy an automobile. It took 
three years. Each member enjoyed the 
saving and the auto is really and truly a 
family automobile. Each member enjoys 
it all the more because he helped to pay for 
it. The running expenses of the automo- 
bile are now paid from the savings under 
the same plan. When the girl can report 
so much saved from her budget for the 
month, she estimates it as a spin of so 
many miles saved. 

According to a St. Louis paper a police 
sergeant offers the following advice. 
Whether the story of the policeman's suc- 
cess is true or untrue, the advice is good. 

"First, marry right. A woman can 
spend all the money a man can make and 

[ 43 1 



SAVING AND INVESTING MONEY 

more, if she wants to. Watch the nickels, 
and see that they are not wasted. The 
dollars will take care of themselves if you 
will watch the nickels. Do not smoke at 
all, and above all do not drink. Do not go 
into debt for personal or household ex- 
penses — you will pay more for what you 
get. Pay cash. But going in debt on a 
good investment is a good thing. It makes 
you save. Do not squander money on 
theaters. Have warm clothes and plenty 
of wholesome food. That saves doctor's 
bills." If you will practice the police ser- 
geant's advice, it will make you as thrifty 
as he. 

A doctor puts ten percent of each day's 
collection, whether much or little, into a 
small savings bank before he leaves the 
office for his home. Once a month he de- 
posits this in the savings department of 
his bank. When five hundred dollars ac- 
cumulate, he invests in conservative in- 
dustrial bonds and makes the semi-annual 
interest hasten the next accumulation of 
five hundred. 

A lawyer puts aside five percent of his 
fees regularly for the family travel fund 
when it seems advisable. If the fund is 
low, trips are postponed until the money 
accumulates. They look forward for spe- 
cial trips and enjoy seeing the funds grow 
for them. 

Another lawyer sets aside every con- 
sultation fee for a special fund. A real 

[44] 



ACQUIRE HABITS OF THRIFT 

j ' •- •'- - - " : ' r \ " 

estate man puts all notary fees into a spe- 
cial saving fund for investment. He saves 
the legal fee for this fund even if the no- 
tary work is given free in the real estate 
transaction. 

A teacher for years has invested her in- 
crease in salary from what she got origin- 
ally when she began teaching. This fund 
is now a good one as she has been con- 
servative as well as wise in her invest- 
ments, turning several houses at a neat 
profit, while making them pay good re- 
turns while owning them. She will not 
be dependent on an old age pension and is 
keener and brighter and a better teacher 
for her business experience. 

A husband allows his wife a certain per- 
cent of the income out of which she runs 
the household. As a result she now owns 
a cottage worth twenty dollars a month. 
A thrifty sensible wife is the best asset 
any man can have. She can make fifty 
cents do more than he can a dollar and do 
it better. An extravagant shiftless wife 
is a millstone about his financial neck with 
a continually rising tide at his feet. 

Another husband pays his wife, to be 
used as she desires, the dress-making 
prices for every article she makes for her- 
self or family. She now owns two good 
first mortgages that bring her three dollars 
a month interest and the family are neat- 
ly dressed. 

Christmas savings funds carried on by 

[45] 



SAVING AND INVESTING MONEY 

numerous banks the past few years have 
not only relieved many anxious Christ- 
mas shoppers but have started many of 
them on the habit of permanent saving. 
Eighty-three thousand dollars was distrib- 
uted by one bank in a city of forty thou- 
sand persons on December tenth, 1915. 
This money was distributed among two 
thousand five hundred patrons of the bank. 
The whole city felt the stimulus in trade. 
The new fund in the same bank began 
with a big increase in the number of de- 
positors. Ask your local banker about his 
Christmas saving fund. It may interest 
you. 

Buying a home on the land contract plan 
has started many a family to saving. The 
habit growing has enabled them to own 
other rental property. One man was pay- 
ing twenty dollars a month rent. He 
bought a home, paying one hundred dol- 
lars cash and the balance at the rate of 
twenty-two dollars a month. It took him 
six years to pay out. He then bought 
another house which rented at twenty dol- 
lars a month, paying the balance at the 
rate of forty dollars a month. It was paid 
out in a little over four years. He is now 
buying the third which he hopes to pay 
out in three years and a few months. In 
a few more years he will have as much 
rent coming in as he gets in salary which 
has never exceeded sixty-five dollars a 
month. Renting out a room helped in the 
[46] 



ACQUIRE HABITS OF THRIFT 

first payment and still contributes to the 
payments on other houses. 

A garden has saved many a city dwell- 
er a good share of the table cost. One 
family lays aside for the saving fund the 
market price of every vegetable used from 
the home garden. From this fund they 
hope to have soon a liberal payment on 
another rental property. With the rent 
coming from the new property and their 
garden fund they will pay out in between 
four and five years. 

One family started a family sickness 
fund of five dollars a month. It now 
amounts to over one thousand dollars. 
They have drawn from it occasionally dur- 
ing the past twenty years. They have met 
from this fund all doctor bills, prescription 
bills, dentist bills, etc. When the sur- 
plus reached five hundred dollars they 
withdrew a part of it to invest in six per- 
cent mortgages. All interest in turn was 
deposited in this sickness fund. 

A family maintains a book and maga- 
zine fund by setting aside every penny 
that comes to any member of the family. 
These are placed in the savings bank and 
drawn upon each year near Christmas for 
renewal of subscriptions or purchase of 
books. 

One young man two years before he 
was married set aside a two hundred dol- 
lar cash discount fund. For ten years he 
has drawn from this fund whenever any 

[47 ] 



SAVING AND INVESTING MONEY 

necessary household article could be 
bought cheaper for cash. This withdrawal 
together with the discount gained by pay- 
ing cash is paid back into the fund as 
promptly as possible. The account is kept 
with as much care as if it were a trust 
fund held for some other person and left 
in his charge. The fund, including interest 
and discounts is now more than six hun- 
dred dollars. It pays to buy for cash, he 
assures us. 

One man, when tempted to buy some 
article not really needed, drops the amount 
saved into his small savings bank when 
he resists the temptation to spend. He 
deposits it in the savings bank the first of 
each month. His interest in watching the 
fund grow, makes it easier, he says, to 
pass up many a worthless trifling purchase. 

A Chicago teacher often buys on special 
sale days at the great stores. She de- 
posits in her small savings bank the dif- 
ference between the regular price and the 
special sale each night after the purchase. 
This is deposited in the bank once a month. 
She dresses as neatly as others in her walk 
of life and has a comfortable emergency 
fund saved. There are three things neces- 
sary to this plan of saving, she says. 

1. You must be a judge of values so 
that you know a real bargain when you 
see it. 

2. You must buy what you need and 

148 ] 



ACQUIRE HABITS OF THRIFT 

resist buying other things not needed even 
if they are cheap. 

3. You must be sure you actually de- 
posit the difference between the regular 
price and the sale price to your savings 
account. 

All three conditions she thinks should 
be easy to a woman of intelligence. 

A Wisconsin man places the price of a 
shave in the bank every time he shaves 
himself and the price of a shine every time 
he shines his shoes. He looks neither rusty 
nor shabby and has added a number of 
dollars to his credit. The saving in time in 
going to the barber shop and waiting for 
his turn is worth as much to him as his 
saving. 

A Milwaukee family saved thirty dollars 
a year on their meat bill by buying cheaper 
cuts. They were just as well or better 
nourished, and the meat was just as tender 
and sweet. Another family saves fifty 
cents a week by using oleomargarine in- 
stead of butter. So far as one can judge 
after several years use no one can discern 
any lack of nourishment in the family. 

One young man finding it hard to save 
gave his mother a note for one thousand 
dollars due in four years. The first of each 
month when he received his monthly sal- 
ary he deposited twenty dollars in the sav- 
ings bank to meet the note when it became 
due. He met it promptly and is paying off 

[49 ] 



SAVING AND INVESTING MONEY 

a second at the rate of thirty dollars a 
month. His mother expects to give him a 
cottage home of his own earning in the 
near future when he is to be married. He 
has never really missed what he paid for 
it as the salary would have been spent just 
the same. Seven years saving has fixed 
the habit pretty firmly and the chances 
are, if his wife lends encouragement to this 
habit of thrift they will increase the sav- 
ings rather than diminish them in the fu- 
ture. 

A Tennessee teacher bought a home for 
herself and mother, paying for it in six 
years on what they had formerly paid out 
in rent. In the meantime it had increased 
one thousand dollars in value. It was her 
first effort at saving. She is now buying 
another home near by, paying double the 
monthly payment as she has the incoming 
rent on the new purchase to help out. 

In cultivating habits of thrift nothing 
aids more than your mental attitude. Look 
up, not down. Look forward, not back. 
Faith in yourself, faith in the future, faith 
in other people, but not blind faith, is what 
counts. Feel your way. Know you are 
right, then go ahead. Know your oppor- 
tunity when it knocks, but do not answer 
too many false alarms. Other people's 
plans and precedents may help you but you 
must modify and vary them to fit your own 
individuality. 

Cultivate in your children and in your- 

[ 50 ] 



ACQUIRE HABITS OF THRIFT 

self thrifty habits. Keep a cash reserve 
fund for opportunities or emergencies. 
Plan ahead. Be conservative but not 
grasping. Save the idle dollars and put 
each one of them on a good steady job as 
soon as you save it. Make them work for 
you. It won't hurt them and it will help 
you. An idle dollar is a worthless dollar. 
Search for the leaks which are a dead loss. 
Stop them and put these savings out to 
earn and repay you the losses they caused 
before you discovered them. Eat plenty, 
dress well, keep up appearances, think 
thrift. Seek to be thrifty in the highest 
and best sense of the term. Stick to it 
with determination and you will succeed. 



51 



PRINCIPLES OF GOOD INVESTMENTS 

In analyzing any investment there are 
five things to be considered. You should 
learn to question each investment upon 
these five principles. 

1. Is the Investment Safe? Safety 
first has been a popular slogan for some 
time. It applies with great fitness to in- 
vestments. Your first question should be : 
"Will I get my principal and interest on 
the day it is due?" The smaller your re- 
sources, the slower your rate of accumu- 
lation, the more necessary that you insist 
on safety of principal and interest in each 
investment you make. Millions of dollars 
are dumped annually into investments of a 
hazardous nature by persons who can dear- 
ly afford to risk. No banker or conserva- 
tive business man would think for a min- 
ute of investing any part of his money 
in such enterprises. Wild-cat stocks, and 
worthless securities, have drained the hard 
earned cash from many a needy family 
because the father did not seek the free 
advice of his home banker else did not 
heed the advice after seeking it. Blue 
sky laws and postal authorities have done 
much to curb these wild-cat speculations. 
Suppressed in one form or under one name 
[52 ] 



PRINCIPLES OF GOOD INVESTMENTS 

the same thing rises and flourishes a few 
months later at a different place and un- 
der a new name. You must learn to know 
their ear-marks under whatever garb they 
are disguised else you are always subject 
to their snares. It is a good plan before 
buying stock in any company or making a 
new investment along an unfamiliar line 
to ask your banker how much money he 
would loan you on the stock as collateral. 
This is the quickest way of getting his 
estimate of its real value. This opinion is 
worth thinking over carefully even if later 
you do not accept his advice. 

2. What Is the Rate of Income? What 
backing lies behind this promise of in- 
crease and does the rate of income seem 
reasonable? Avoid get-rich-quick schemes. 
Because some firm in the mail order busi- 
ness has made magnificent returns to its 
stockholders is little assurance that every 
other mail order firm, patterned after the 
successful one, will pay like dividends. If 
profits are unusually large, competition is 
sure to come. As competitors enter the 
field the pioneer firm often can conduct 
business far more cheaply. On account of 
its prestige, facilities and perfect organi- 
zation it will be able to sell at a greater 
profit or at a less price than its new compet- 
itor. Organizers of new enterprises are not 
going to point out the danger of loss to 
you. That is your business. They will 
paint you rosy pictures of gigantic profits 

[53] 



SAVING AND INVESTING MONEY 

and make glowing promises. It is up to 
you to judge whether these can be fulfilled 
or not. 

Legitimate interest earning rates may 
vary with the period or the epoch. For 
the past two decades, six percent with 
safety has been a guiding slogan with 
many. Five, and five and a half percent, 
has not been uncommon. Investments 
promising over six percent income were 
looked upon as questionable. Anything 
offering eight percent or more was con- 
sidered largely speculative. No man can 
afford to speculate with his savings. The 
well to do or the wealthy having more 
money may take greater risks. You as a 
small investor can not afford to take great 
risks with the hope of increasing your 
income over a legitimate earning power. 
Safety of principal and security of income 
when due are the first things to consider. 
Unless these seem absolutely sure, the 
small investor should turn down any deal. 

3. What Is Its Cash Convertibility? 
This is of great importance to many per- 
sons; to others it is not essential. "Can 
I cash out in case I need the money?" — 
that is the first question to many persons. 
Many stocks and bonds have their daily 
market value. They are listed and sold 
daily on the curb. This price may vary 
from day to day, but like poultry and eggs, 
or corn and wheat, there is rarely a day 
when they may not be sold at the price 

[ 54] 



PRINCIPLES OF GOOD INVESTMENTS 

prevailing that day. Only in rare cases of 
panic is it impossible to realize upon them 
and this is only for a few days. 

Some of the surest and safest invest- 
ments are slow convertibility into cash. 
Real estate mortgages are an example. 
Few investments are safer than good 
mortgages but they are slow sales. They 
are not listed. They do not have a daily 
market value. They are not sold on the 
curb. It takes time to sell them. They 
may be used often as collateral to borrow 
upon but an out and out sale frequently 
requires time and a liberal discount to get 
the cash. 

4. What Is the Probable Increase in 
Value? This element has its speculative 
tendency. Millions of dollars are invested 
annually and much of it lost because the 
investor buys expecting an increase in 
value that never comes. Fortunes have 
been made in such investments and mill- 
ions of hard earned dollars lost. The gi- 
gantic fortunes are heralded by salesmen 
and promoters but never a word do they 
say of those who have lost. New ventures 
in mining, manufacturing, handling patent 
rights, etc., floated by popular subscrip- 
tion in small shares are dumping holes for 
the poor man's savings. Flaming circu- 
lars and blazing advertisements are her- 
alded abroad, promising fabulous increases 
in value of stock in a few months or a few 
years. As a rule it is safe to shun stocks 

[ 55 ] 



SAVING AND INVESTING MONEY 

which may be bought at a certain price 
provided you order immediately, but on 
and after a certain date the price will be 
increased or doubled. "You can get it at 
this price only on condition your order 
reaches us on or before six o'clock P. M. 
Saturday, Nov. 10," they tell us. We have 
to hurry else it will all be sold. This hurry 
time limit has caught many a man. He 
is made to believe opportunity is knock- 
ing at his door and he makes haste to 
open before it is too late. It usually shows 
poor business judgment to bite at such 
propositions. 

Soon after Saturday, Nov. 10, comes an- 
other brilliant circular stating: 

"Whereas, the public demand for our 
gilt-edged, gold-guaranteed, what-not 
bonds has proved beyond anything ever 
known in the bond market, and were so 
far beyond our most sanguine expectations 
that we have concluded to extend for a 
short time the same low price to a few rep- 
resentative investors who failed to respond 
to our first unprecedented offer. We have 
selected you as one of the few fortunate 
ones to which this second offer is extended. 
Write or telegraph us immediately, just 
how many shares of these bonds you and 
your intimate friends can handle. If pos- 
sible we shall save them for you. If all 
are sold before your reply reaches us, we 
shall return your money promptly, etc., 
etc." 
[56] 



PRINCIPLES OF GOOD INVESTMENTS 

Such circulars are familiar to many a 
victim who has bit and lost his savings, 
Increase in value is a legitimate quality to 
be looked for in making investments in 
stocks or bonds. It is seldom found, how- 
ever, in the popular subscription stock ad- 
vertised by speculators. A hundred men 
lose where one gains in such speculations. 

5. Is the Market Price Stable? This 
is closely related to the first quality named 
above, but differs in short periods of time. 
Some investments may be safe but fluctu- 
ate in price widely with the varying con- 
dition of the money market. Other invest- 
ments may be safe and not fluctuate so 
greatly. They are not listed. They are 
not so closely connected with the money 
market and are freer from speculative 
qualities. First mortgages on real estate 
seldom change in value. They do not in- 
crease in value with the rise in the price 
of land. They do not lose their value un- 
less the land depreciates below the margin 
of security. A small discount may be nec- 
essary to convert them into cash. They 
may not be used easily as collateral but 
the value is there. Occasionally a small 
bonus may be paid to obtain them, but the 
fluctuation is small under any condition. 
Industrial bonds may be absolutely safe if 
carried over long periods of investment, 
but if thrown on the market suddenly they 
may vary greatly in price on two dates only 
a few months apart. They are not stable 

[57 ] 



SAVING AND INVESTING MONEY 

like the first mortgage real estate securi- 
ties. 

These five qualities are present to some 
degree in every investment. These five 
principles will guide you in analyzing any 
investment. You should know which com- 
bination of qualities will suit your needs 
best and seek these qualities in making in- 
vestments. Experience may have taught 
you to judge wisely yourself. If unable to 
judge, consult your local banker. He will 
likely have had more experience in an- 
alyzing values and will give you the sound- 
est of advice free of charge and nearly 
always free from selfish interest. 

A high degree of one of these five quali- 
ties is apt to mean a lower degree of some 
one or more of the other qualities. You 
must judge which of these qualities will 
suit your needs the best. You may want a 
permanent investment, a place where trust 
funds may remain through a series of 
years. In this case convertibility will be 
of little consequence to you. Usually, high 
convertibility means low rate of income. 
It would be folly to pay a high market 
price for bonds of quick convertibility 
when the investment is to run a long time. 
You may find other securities just as safe, 
just as stable, with a much greater prom- 
ise of increase in value, and with a better 
rate of income. You would sacrifice but 
one quality, convertibility, and this quali- 
[ 58] 



PRINCIPLES OF GOOD INVESTMENTS 

ty you would not need for a long time in- 
vestment. 

Convertibility is of great importance to 
some investors. To others it is of small 
value. If you are a private investor, using 
your own funds, you may care little for 
convertibility. As long as your funds are 
safe, making a good rate of income, inter- 
est paid promptly, free from fluctuation, 
you do not care to convert them. On the 
other hand, if you are investing a business 
surplus which may be needed at any time 
upon short notice, to increase the business 
or to meet temporary reverses, converti- 
bility is of the very highest importance. 
In this case income must be sacrificed to 
convertibility. If not your funds may be 
tied up at a time of sore need. Converti- 
bility for a business surplus is essential. 

Some investors are so fortunately situ- 
ated financially that they seek increase in 
market price as the principal quality. Men 
of wealth, with incomes far beyond their 
needs, may well seek stocks and bonds with 
large possibilities of increase in price. 
They seek investments promising large ap- 
preciation in value. They can afford to 
take the risk. They do not buy for in- 
vestment but for speculation. It too often 
happens, however, that it is the poor man 
who can ill afford the loss, that takes the 
most chances and loses his money often- 
est. It i* especially to this large class 

[59] 



SAVING AND INVESTING MONEY 

that these pages are directed. The thrifty 
man is not a risky man. 

Some investments are safer in interest 
than in principal. Others are the reverse. 
For example, bonds of large terminal rail- 
roads, leased for a series of years under 
contract, may be safe as to interest and of 
doubtful safety as to principal. The traf- 
fic center may have so changed by the end 
of the leased period that the terminal may 
be abandoned and others established miles 
away. The interest is safe as long as the 
lease runs. The principal may be lost in 
the end. The city may have grown away 
from the terminal until the abandoned 
terminal has nothing but a real estate 
value. 

Then again principal may be safe while 
interest is doubtful. A newly built rail- 
road through a new country may be a 
safe investment for the principal which 
runs for a series of years and yet much of 
that time be a very poor dividend payer. 
In time of depression it may default as to 
interest for years and yet no one would 
doubt the safety of principal if the stock 
investment were let run until prosperity 
returns. 

Stability of market price differs from 
safety. An investment may vary many 
percent in market price on two dates and 
yet its safety as an earning investment 
never be questioned. Common or preferred 
stock in good companies may be bought to 

[60] 



PRINCIPLES OF GOOD INVESTMENTS 

yield good income. The market price may 
vary from five to fifty percent in a year 
without variation of or reduction in earn- 
ing power. In periods of great business 
prosperity the rate on call money may be 
very high because the liquid capital of the 
country has to a large extent been con- 
verted into fixed forms of investment. 
These high rates reduce the level of in- 
vestment securities because people holding 
such securities are apt to cash out in order 
to loan the money so released. The tem- 
porary tightness of the money market may 
be reflected in the price of securities al- 
though there is no decrease in the value 
of the investment. No one questions the 
food value of a fresh egg even though its 
market value varies from fifty to one 
hundred percent during the course of a 
year. Real estate mortgages fluctuate less 
probably than any class of securities. They 
are not listed on exchange and are not a 
ready sale. National banks can not deal 
in them, safe as they are conceded to be, 
because they are slow convertibility. 

You must know the qualities of greatest 
worth to you in your investments and seek 
securities containing these qualities. When 
seeking the advice of a banker explain the 
exact nature of your investments that he 
may advise more wisely. Like the physi- 
cian, the banker can not intelligently pre- 
scribe unless he knows the symptoms. 

For the investment of a business sur- 

[ 61 ] 



SAVING AND INVESTING MONEY 

plus, safety, convertibility and stability 
are the qualities that appeal the strongest. 
Each investment must be measured by 
these qualities. For the private investor 
who is dependent upon the income for sup- 
port, safety and a high rate of interest are 
the strong qualities. To the private in- 
vestor who is not dependent upon income 
for support a lower rate of present earning 
with good prospect of appreciation in value 
are strong qualities. He may be more able 
to take risks than the person investing a 
business surplus or the person who must 
depend upon the income for support. 

Widows and orphans are not the only 
ones who fail to invest wisely and well. 
Often the business man of good business 
ability is short-sighted in his outside in- 
vestments. Accustomed to take chances 
in his own business to which he gives his 
personal energy and attention, and out of 
which he repeatedly makes good returns, 
he fails to detect anything financially 
wrong in a proposition that promises to 
pay handsome profits upon small invest- 
ment of capital. He has made large prof- 
its on his own business and forgets that 
the rate of return on invested money is in- 
terest purely and only, and must be small. 
His own handsome returns are the inter- 
est on his investment plus his own skill 
and attention in directing and handling 
the business. Because he realizes from 
ten to twenty percent gross on his money 

[ 62 1 



PRINCIPLES OF GOOD INVESTMENTS 

used in his own business he is often easily- 
persuaded by the smooth salesman that he 
may expect safety and the same returns 
as a purely money investment. He fails to 
capitalize his own time and energy and 
skill in handling his own affairs. He 
awakens too often also to find that he not 
only loses his income promised but the in- 
vested capital as well. 

You must learn to discriminate early 
between a promise to pay and an equity. 
Many persons do not recognize the differ- 
ence between the two. To many persons 
stocks and bonds are synonyms. They 
do not discriminate between them. It oc- 
curs often that persons of intelligence do 
not know which it is they own. So long 
as the money comes at regular intervals 
they do not ask whether it is interest or 
dividends. It is money in either case and 
they let it rest at that. 

Bonds, real estate mortgages, and loans 
on collateral are promises to pay. If the 
promise is good and the margin of security 
sufficient the holder will get his interest in 
due time. The borrower must pay the in- 
terest on the bonds which represent bor- 
rowed money whether there is anything 
left for the payment of dividends or not. 
If the interest is not forthcoming when 
due the business will be closed out or 
placed in the hands of a receiver for the 
benefit of the creditors. Dividends can 
not be paid until interest claims are met. 

[63] 



SAVING AND INVESTING MONEY 

On the other hand, stocks in railroads, 
manufacturing plants, banks or corpora- 
tions of any kind are equities in the busi- 
ness. The stockholder has a certain resid- 
uary share in the assets and profits of the 
concern depending upon the proportionate 
share of stock. He is entitled to his share 
of dividends whether large or small. Un- 
til interest on borrowed money is paid he 
gets nothing. If the business is a losing 
one he may be subject to assessment 
against his stock to meet deficiencies. He 
can not compel anyone to pay him back 
the money invested in the stock or any 
part of it. Neither can he force anyone 
to pay him either interest or dividends. 
The stockholder's only hope is to share in 
the net profits of the business and in many 
cases he may be forced to pay assess- 
ments to meet deficits or forfeit his en- 
tire stock in the company. If the business 
flourishes, his dividends are reliable. If 
the business languishes his dividends are 
reduced even to the vanishing point and 
the principal itself may be imperiled. He 
is even fortunate often if he is not subject 
to assessment over and above the par value 
of his stock. His only chance of getting 
a dividend is by the business earning one, 
and his only chance of getting his capital 
out of the business is by finding some one 
who wants his stock bad enough to take 
it off his hands either at a premium or a 
discount as they may agree between 

[64] 



PRINCIPLES OF GOOD INVESTMENTS 

themselves. The stockholder owns an 
equity only. 

Equities may be profitable, more profita- 
ble than bonds in the same company. If 
the business grows and prospers big divi- 
dends may be paid. Stock values in a 
thriving business may go far above par 
and be a quick and ready sale. The profit 
belongs to the stockholder and is legiti- 
mate. He shares the risks of the business 
and it is right that he shares the profits. 
Do not be too envious of the stockholder 
who gets splendid dividends during a se- 
ries of years. Reverses may come and he 
must assume risks of failure as well as 
share profits. His returns depend entire- 
ly upon the success of the enterprise. 

One of your first problems as an investor 
is to learn to discriminate between a 
promise to pay and an equity. Both may 
be good and both may be bad. In the 
same business if an equity is good a prom- 
ise to pay is sure. There is less risk in 
the promise to pay than in an equity. The 
equity gets no returns until the promise 
to pay has been met. The equity, or in 
other words the stock, in a growing pros- 
perous concern shares in the profits and 
grows in value. Dividends may be large — 
exceedingly large under some conditions — 
while the bondholder or holder of the 
promise to pay gets only the stipulated 
rate of interest. As the years go by a 
prosperous business may even accumulate 

[65] 



SAVING AND INVESTING MONEY 

undivided profits enough to retire the 
bonds entirely. In that case the bond- 
holder gets back his principal and stipu- 
lated interest while the stockholder con- 
tinues to share in the still greater divi- 
dends due to having no outstanding inter- 
est on indebtedness. 



[ 66 



OWNING A HOME 

Nothing gives a keener zest to thrift 
than saving to own a home. Our thrifty 
foreign bom citizens, as well as many of 
our native born, are home owners. The 
home-owning spirit is commendable. A 
city of home owners is a stable city. A 
city of renters is apt to be shifting and 
transient. A country of home-owned 
farms is a thrifty country. To own the 
roof above your head gives a feeling of 
safety and comfort. Husband and wife, 
as well as children, will more often unite 
in saving for a home than for any other 
purpose. It is something each member 
of the family may share. Investments in 
stocks and bonds, mortgages, and often 
investments in farm lands, seem some- 
thing apart from the family and of inter- 
est to the husband alone. The wife and 
children do not seem to be partners. With 
a home it is different. Each member of 
the family shares in it. Hence each mem- 
ber of the family is apt to save gladly to 
invest in the home. 

Owning a home is the quickest and sur- 
est cure for anarchy. That city is safest 
from riot and bloodshed in which most 
people own their homes. Any man worthy 

[67] 



SAVING AND INVESTING MONEY 

the name will defend his home. If the 
home and the house both belong to him 
his defense will be doubly sure and more 
vigorous. He will feel himself a part of 
the city. He will take a keener interest in 
the city's affairs. He will take greater 
pride and pleasure in the home itself. The 
very best of renters takes little or no pride 
in planting trees or shrubs on the other 
man's property. He may get the keenest 
of pleasure in giving his own house a new 
coat of paint. It is rare indeed that you 
find a renter who is willing to paint the 
other fellow's house without a money con- 
sideration even if the owner would fur- 
nish the paint. 

Home owners are less transient. The 
home owner is tied down in a degree. In 
this sense it may be a good or a bad busi- 
ness investment. It is well often for the 
man of roving habits to become interested 
in buying a home and having something to 
tie him for a time to some locality. The 
habit of regular saving to pay for a home 
may be an excellent discipline. On the 
other hand many business and professional 
men find the owning of a home an incum- 
brance. Opportunity calls and a pleasant 
home and financial investment stand in 
the way of acceptance. The home may not 
be one that will sell readily. To get its 
value may require time. A forced sale is 
seldom a big profit. When the public 
knows that you must leave a city, each 
168] 



OWNING A HOME 

prospective buyer holds out, hoping for the 
very lowest figure, believing that you must 
sell regardless of the price. The home 
may not be one that would rent readily or 
at a figure to pay good returns on the in- 
vestment. To accept the offered oppor- 
tunity would mean a sacrifice of money, 
hence the home stands in the way of pro- 
motion. 

It is a personal problem for each to 
solve for himself whether it is better to 
buy a home or keep his money invested in 
something else. The following points are 
worth consideration when debating wheth- 
er it is best to invest in a home or in other 
good securities. 

1. Is your occupation likely to be per- 
manent ? If you are thrifty, you need have 
little fear of being unable to pay for a 
home in time. You must use good judg- 
ment in selecting and buying. As in oth- 
er things you must keep your eyes open. 
The other fellow is not likely to tell you all 
the faults or ask less than he thinks 
you will give. Unless unusually handi- 
capped, or unless unusual bad luck should 
follow, you can own your own home. 
Your question is, "Will it pay to own my 
home?" If your business is transient in 
its nature, or if you are situated so that 
you can keep each dollar working regular- 
ly, it may be better business judgment to 
rent from others. 

The renter has some advantages. It 

[69] 



SAVING AND INVESTING MONEY 

is often easier for the renter to leave an 
undesirable neighborhood than if he were 
the owner of the property. If you do not 
like the family next door, or if the general 
character of the neighborhood is chang- 
ing, as a renter you can easily move. If 
the property were yours, you might be 
unable to dispose of it to advantage. You 
would find it harder to get away from the 
family next door. If the neighborhood 
were retrograding you might have to sell 
at a loss or rent at a low figure to get away. 
The renter often demands and gets im- 
provements that he would do without if he 
were owner of the property. The renter 
is never handicapped in accepting a new 
job or going to a new position. At the 
end of the month or at the end of his lease 
he is free to go to another place. If he 
were a home owner he might be unable to 
make the change without risking loss in 
rent or on the sale of the property. 

2. Can you buy a home at a figure that, 
should the occasion arise, you may sell on 
short notice so that you will get your 
money back or make a profit? Perhaps 
more salaried men, either business or pro- 
fessional, lose money by owning property 
than gain. They do not sell to advantage. 
This is due to several reasons. They are 
not always good buyers to begin with. 
When location, construction and con- 
veniences are considered, they pay too 
t 70] 



OWNING A HOME 

much for the property. They pass all the 
profit over to the builder, the owner, or 
the agent when they buy. Later when 
they sell there is no legitimate margin 
left for themselves. Too often profes- 
sional men buy homes far beyond their 
means. The homes are out of all propor- 
tion to their salary or income. A five 
thousand dollar home costs the owner 
twenty-five dollars a month in interest 
without considering taxes or upkeep. 
Many men, drawing fifteen hundred dol- 
lars a year salary, want to own a home 
worth from ten to twenty thousand dol- 
lars. From forty to sixty per cent of their 
salary, or its equivalent, is required to 
pay interest on their investment. They 
may not owe a cent on the home and yet 
the money they have invested there is 
worth from five to six percent interest just 
the same. Twenty to thirty percent of 
one's income is all that should be paid out 
in rent. When the owner of a large home 
must sell, he is apt to sell at a loss. A 
professional man who must change posi- 
tions and leave his home, if it is an ex- 
pensive one when compared with his sal- 
ary, seldom sells at a profit or rents to ad- 
vantage. Most persons able to own a ten 
thousand dollar home, want it construct- 
ed to suit their own whims. They prefer 
to buy a lot and build to buying an ex- 
pensive home that will cost as much to 

[ 71 ] 



SAVING AND INVESTING MONEY 

remodel to suit them as a new one would 
cost, and even then may not be just what 
they would like to have. 

3. Rental value determines the real 
money value of property. If you ever ex- 
pect to sell, you must consider your home 
from a strictly business standpoint or lose 
money on it. What will your property 
rent for if you leave it ? Will this pay an 
income on the investment? That is the 
big question for you, when you are buying. 

Unless your property will pay you from 
ten to twelve percent income on the in- 
vestment, gross, it is not an extra good 
investment. After deducting taxes, in- 
surance, repairs, upkeep, depreciation, 
and making allowance for remaining idle 
part of the time, your twelve percent gross 
income will rapidly drop to five or six per- 
cent net. Your home may have untold 
treasure to you in sentiment, comfort, lo- 
cation, convenience, etc., but from a busi- 
ness standpoint it must reduce to one ele- 
ment. That one element is what rate of 
income will it pay as a rental investment. 
This will determine the cash value of the 
house better than any other basis of cal- 
culation. 

4. In buying a home to live in or to 
rent, location counts for much. It is good 
business judgment to pay more for the 
good lot and good location and cut down 
on the extras of the house itself. In hun- 
dreds of cases it is better to add five hun- 

[ 72 ] 



OWNING A HOME 

dred dollars to the cost of the lot and take 
it from the building price of the house 
than to build a good house on a poor lot 
or in a poor location. 

A corner lot usually costs more both in 
price and upkeep, but it is nearly always 
worth the extra cost. Sunshine and air 
cost in the city but they are cheap at the 
price. A corner lot gets these. A house 
may be changed, remodeled or removed. A 
lot and the location are permanent. Loca- 
tion counts in the home, and is a good in- 
vestment when you sell or rent. Renters 
who are indifferent to location are seldom 
good renters. This does not imply that 
excellent renters are not often found in 
extremely poor locations. They are. They 
are there from force of circumstances. Let 
the opportunity offer to get a better loca- 
tion and accommodations at the same 
price and they would be quick to take ad- 
vantage of it. A choice location often 
means a steady rent from desirable tenants 
while a poor location means constant 
change, one tenant following another in 
rapid and continuous procession. 

5. What is the demand for houses in 
the town or city in which you are invest- 
ing? What kind of houses are most in 
demand? Is the city growing? Will the 
demand for houses continue to grow? Is 
it a rapid boom or a steady growth ? Will 
the demand for houses increase or de- 
crease ? 

[ 73 ] 



SAVING AND INVESTING MONEY 

Nothing will kill a town quicker than 
a score of empty houses which can not be 
rented. Nothing is deadlier for a city than 
a few hundred unrentable houses. Real 
estate men are great forces in a city's 
growth and development. As a group they 
are men of enterprise, good judgment and 
initiative. The greatest mistake they can 
make is to encourage a building boom that 
over shoots the mark. The building of 
houses in excess of the demand is fatal. It 
hurts those who own property. It hurts 
those who do not, and it is suicidal to the 
city itself as well as to the real estate 
boomers who encourage it. A city or a town 
of steady, hearty, healthy growth is a safe 
place to invest. There should be a good 
steady demand for rental property at a 
fair income. The city is most prosperous 
when no idle houses are found. A city of 
mushroom growth, with transient or spas- 
modic industries, passing rapidly from 
periods of deep depression to boom pro- 
portions are speculative places for invest- 
ments in a home. You may gain, and 
then again you may lose hard. 

Know the city in which you invest. Use 
your sober judgment as to its future. Be 
conservative without being pessimistic. 
Talk to optimists as well as a few knock- 
ers. Even a knocker may open your eyes 
sometimes, useless as they are apt to be 
in general. You should live long enough 
in a place before buying to get acquainted 
[74] 



OWNING A HOME 

with its different resident districts and to 
get some idea of its land values. Each city 
has its own values. What would be cheap 
in one place may be dear in others. Lots 
on one street may be cheap at fifty dol- 
lars per front foot. A lot of the same 
size and character on another street may 
be exorbitant at twenty dollars per front 
foot. It depends upon its location. 

The following fish story may illustrate 
land values as well. A Pittsburg tourist in 
Tampa saw a negro boy early one morn- 
ing with a basket of fine fresh fish care- 
fully covered with cracked ice. Hailing 
the darky he asked, "Sam, where did you 
get those fish?" "I kach 'em," replied 
Sam. "What do you want for them, Sam ?" 
"Four bits, Boss." "What! Fifty cents 
for such a basket of fish as that? Why, 
Sam, if you had that basket of fish in 
Pittsburg this morning you could get five 
dollars for them!" "I spec so, I spec so, 
Boss," said Sam. "I spec if I had this 
hur cracked ice in Hades, I could git a for- 
tune fur it, too, Boss." 

The location in the city, the size and im- 
portance of the city, land values there, 
the probable growth of the city and the 
demand for houses all go toward deter- 
mining whether an investment in a home 
will prove a good or bad investment. What 
may be worth fifty cents in one place may 
be worth five dollars in another or a for- 
tune in still another. 

[ 75 ] 



SAVING AND INVESTING MONEY 

6. Study the probable growth and char- 
acter of the locality in the city where you 
invest in a home. Some localities are on 
the up grade. Others are going down 
hill. The value of property in one locality 
may decrease fifty percent in five years. 
The location of some objectionable fac- 
tory, a change in terminal facilities, the 
abandonment of some large attractive en- 
terprise, or an influx of a group of unde- 
sirable residents, may reduce values in the 
adjoining neighborhood half in a short 
time. Seek a locality where the resident 
district is apt to remain stable else ad- 
vance in value. If you locate where land 
values are decreasing in price, you are apt 
to lose. If land values are going up, and 
increase until you can no longer afford to 
live in that neighborhood, you can always 
sell at a profit. You can buy again in a 
cheaper district and have a profit left for 
some other investment. 

In times of boom and often under the 
magnetism of an interested real estate 
salesman, you are in danger of buying in 
a far out suburb or obscure subdivision 
where street cars, paved streets, gas, 
water, sewers and other improvements are 
a decade in the future. You are assured 
that all of these are only questions of time. 
That may be, but how long a time? Will 
the salesman guarantee these as to time 
in the contract, with a suitable forfeiture 
in case they do not come in the time set? 

[76] 



OWNING A HOME 

That is the test. In these outlying sub- 
divisions you often pay prices for vacant 
lots which would buy lots in just as good 
districts closer in, with all streets, gut- 
ters, gas, water and sewers down and paid 
for. You are doomed to live without these 
conveniences for years and then when they 
do come you must pay for them still. 

Other things being equal, a location on 
a good paved street, with all improvements 
in and paid for is the cheapest. The cost 
of installing all these improvements on a 
lot is often several hundred dollars after 
you have waited and done without them 
for years. With all these things to con- 
sider, it is strange how many men will 
flock to the unimproved suburbs, paying 
prices far beyond the same kind of proper- 
ty just as well located and nearer their 
business, and where increases in values are 
just as sure as in the outlying districts. 
The vacant lot speculator and salesman 
usually booms his subdivision and it is his 
salesmanship that sells rather than ju- 
dicial consideration of the property. 

7. The money value of a home, as well 
as its value in selling or renting, depends 
much upon its convenience. A sensible, 
practical, home loving, home keeping wife 
is often the best judge of the convenience 
of a home. No architect's plans are com- 
plete until they are carefully criticised and 
modified by the experienced housewife. 
She will point out errors and suggest 

[77] 



SAVING AND INVESTING MONEY 

practical improvements unnoticed and un- 
recognized by the best of architects. If 
there is any place where a woman's rights 
are needed, and where they should be 
heeded, it is in planning the home in which 
she is to spend so many hours of her time. 

The practical house rents better, sells 
better, lives better, and all in all is a far 
better investment than a man-planned 
architect's model. A woman of good taste 
is less likely to sacrifice convenience for 
ornament. There is apt to be less waste 
space. Walls are not cut up so badly. She 
sees in her mind's eye each piece of furni- 
ture placed to the best advantage. Closet 
space is ample and arranged to be handy 
for each room. The architect is too apt 
to look at the house from the artistic side 
only. The practical woman will combine 
the artistic with the practical. 

Financing a home is a big problem, and 
often the beginning of thrift in a family. 
Do not construe what has been said so far 
in this chapter as a discouragement of 
home owning. It is intended rather 
to prevent loss of money by 
home owning. Home owning has not 
proved profitable to every one who has 
tried it. A big majority of persons would 
never own a home if it had to be paid for 
spot cash when it was bought. Saving 
to own a home, next to building or furnish- 
ing one, gives the greatest pleasure com- 
[78] 



OWNING A HOME 

mon to most men and women. There are 
three usual plans in financing a home. 

1. The Land Contract Plan. A home 
is bought, either new or old, upon the pay- 
ment of a certain cash payment varying 
from one hundred to a thousand dollars. 
The balance including interest is paid in 
monthly installments. The monthly pay- 
ments are slightly more than the rental 
value of the property. This makes it safe 
for the seller, otherwise the buyer might 
leave it unpaid at any time and lose no 
more than had he been renting during the 
time. 

A series of first mortgage notes against 
the property is given for the deferred pay- 
ments. One note of the series becomes 
due the first of each month. In some con- 
tracts all interest on deferred payments are 
included in the monthly payment. This 
enables the owner of the notes to reinvest 
this money thereby securing compound 
interest in a measure. It also causes each 
monthly payment to decrease slightly each 
month until the last payment is due. In 
other contracts each note with the ac- 
cumulated interest on that particular note 
from its date until paid is included. In 
this contract the purchaser of the property 
gets a slight advantage but each note is a 
little more than the preceding one. This 
increase is one month's interest on the 
monthly payment at the specified rate. 

[79] 



SAVING AND INVESTING MONEY 

These notes are payable at some bank 
or some real estate office. Upon payment 
of a note and interest one note of the series 
is canceled and returned. When all notes 
are paid a warranty deed or release of 
mortgage is given by the party selling the 
property. This deed is then duly recorded 
or the release of mortgage is properly en- 
tered upon the books of the county record, 
and the sale is complete. The property 
has then actually changed hands. 

The amount of the monthly notes is de- 
termined by the value and price paid for 
the home. Often five, six, and even »ten 
years are allowed for the payment of a 
home, in full. The payments being a lit- 
tle in advance of the rental value of the 
property secures the seller from loss in 
case payments default. The purchaser 
pays all taxes, insurance and repairs. Each 
note paid gives added security in the 
mortgage notes for the balance of the se- 
ries, as the payment of each note gives 
the purchaser an increased equity in the 
property and all of this equity in turn is 
margin of surety to the seller. The un- 
paid notes are ready sale in a restricted 
way. They are often used as collateral 
in the purchase of other real estate, and 
are bought and sold by brokers and real 
estate dealers. 

2. The Straight Mortgage Plan. In 
this case the property is bought outright, 
usually half or more of the price being 
180] 



OWNING A HOME 

paid in cash. The purchaser borrows the 
balance and pays for the property in cash 
or gives one or more mortgage notes for 
the balance due. If he pays in full he re- 
ceives a warranty deed. If he borrows 
from other parties other than from the 
former owner he gets a warranty deed. 
Unless the purchaser's credit is sufficient 
to borrow all needed money without giving 
mortgage notes, the home is usually mort- 
gaged to secure the money to finish paying 
for it. These notes may run any length 
of time agreed upon. They may be paya- 
ble all at one time or a certain amount 
may be due and payable each year with 
interest upon the whole amount. Usually 
such notes are drawn in a series, a certain 
note of each series being due each year. 
Failure to meet one of the notes and the 
interest when due usually makes all the 
notes due and payable. In this case the 
purchaser must arrange the obligation or 
the property is subject to foreclosure. 

A better plan for the purchaser, when 
it can be arranged, is to have all the notes 
of the series due and payable on or before 
a certain date in the future. In this case 
if you are the purchaser, you may take up 
one or more of the notes at any time. By 
paying the note you stop that much inter- 
est. For example, if you purchase a home 
on this plan there might be one thousand 
dollars due on it. You would give, let us 
suppose, ten notes of one hundred dollars, 

[ 81 1 



SAVING AND INVESTING MONEY 

each payable on or before ten years from 
date, interest payable annually. If by any 
fortunate manner you find yourself in pos- 
session of one hundred dollars and inter- 
est on any one note, you can pay that note 
off and stop interest on it. If, on the other 
hand, you meet the interest on the series 
of notes on each annual interest date, you 
can not be compelled to pay the principal 
of any of the notes until the end of the ten 
year period. 

Under such terms, you can not be com- 
pelled to meet a certain amount of the in- 
debtedness each year. Should you be 
fortunate enough to have a few hundred 
dollars on hand, and a better investment 
offers, you may defer the payment on the 
home and use the money elsewhere. On 
the other hand if you have a few hundred 
dollars on hand, and no better investment 
offers, you can apply it to taking up notes 
on your home and thus invest it immediate- 
ly so that it will save you the outlay of in- 
terest. 

This general plan is slightly modified 
often by allowing you to repay upon any 
interest date any amount in multiples of 
one hundred dollars. You may pay, one 
hundred, two hundred or any other even 
multiple of hundred dollars. This stops 
any future interest against you on the 
amount paid. In some contracts you can 
pay any multiple of one hundred, provid- 
ed you give thirty or sixty days' notice 

82 1 



OWNING A HOME 

that you expect to do so. This gives the 
lender or his agent time to look up new 
investments for the amount you expect to 
pay. 

3. The Building and Loan Plan. 
Building and Loan Associations have been 
excellent promoters of thrift during the 
past twenty-five years. Few financial 
agencies have proved safer than our local 
building and loan associations scattered 
over the country. Thousands of homes, 
owned and paid for, are living monuments 
of their success. Thousands of home own- 
ers, are owners of homes because of build- 
ing and loan organizations. Had it not 
been for their help many persons would 
never have been able to pay for and own 
a home. In many sections of the coun- 
try scarcely a city of two thousand or 
more can be found without one or more 
local building and loan associations. The 
little cities as well as the larger ones are 
dotted all over by homes built or bought 
and paid for through the local building 
and loan. 

These organizations are usually local. 
In fact the local associations have the best 
record. Most of them are purely mutual. 
All the profits except the small clerical ex- 
pense reverts to the members based upon 
the number of shares of stock they own. 
Most of these organizations limit the num- 
ber of shares of stock which may be owned 
by any one member. This prevents wealthy 

[ 83 ] 



SAVING AND INVESTING MONEY 

men from obtaining a controlling interest 
in the company. Wealth can not monopo- 
lize them, or make them a tool to increase 
its own profits. 

These local associations restrict their 
operations to their own city or to their 
own county. Men of good business judg- 
ment are always found who are willing to 
serve on the board of directors without 
compensation. The secretary who is the 
real executive head of the association, even 
though he can do nothing without the con- 
sent of the directors, usually is paid a 
small salary for his services. Operating 
over small areas, the local associations are 
closely bound up with the prosperity of 
the city or county. Property values and 
property conditions are well known. It 
leaves far less latitude for speculation than 
if they covered larger areas. The directors, 
if conservative business men, are more fa- 
miliar with values and are less liable to 
take great risks. 

Building and loan stock is usually is- 
sued in a series. These are sold and paid 
for in monthly payments of fifty cents per 
share. An entrance fee of twenty-five 
cents per share is often charged. All mon- 
eys are kept closely invested in first mort- 
gages often on homes of the members. 
The borrower pays back to the building 
and loan association in monthly install- 
ments a part of his loan with liberal inter- 
est and premium. Loans not exceeding 

[ 84 1 



OWNING A HOME 

eighty percent of the cost or value of the 
property may be obtained by the borrower. 
Nothing but first mortgage will be accept- 
ed and abstract of title must show clear 
record of ownership and freedom from all 
claims except the amount due the associa- 
tion for which the mortgage is given. 
Each monthly payment makes the balance 
of the loan more secure. No stock has 
proved a safer investment in this country 
than building and loan stock, because of 
this first mortgage, monthly payment plan. 

When the monthly payments on the 
building and loan stock, plus the interest 
and premium accumulated amounts to one 
hundred dollars the stock is said to have 
matured. The owner of the stock may 
then withdraw the cash value of the ma- 
tured stock. The rate of income on such 
stock has been from seven to ten percent. 
The safest investment with the highest 
rate of income has often been stock in a 
good building and loan. Were not the 
number of shares limited to the individual, 
many men of means would invest heavily 
and profitably in such stock. 

Building and loan associations reserve 
the right to retire any stock in the order 
of its subscription at a certain stipulated 
percent of interest upon a sixty day notice. 
This enables the association to retire un- 
needed stock in dull times and prevents the 
accumulation of an unprofitable surplus, 
imperiling the rapid maturing of the stock. 

[85 ] 



SAVING AND INVESTING MONEY 

Borrowers from a building and loan asso- 
ciation who are also stock holders are con- 
sidered preferred stock holders. Their 
stock can not be retired unless they de- 
sire it. This insures to them the highest 
possible rate of earning upon their stock 
investment. It is the stock in the build- 
ing and loan that matures that yields the 
greatest returns, rather than the stock 
that is retired before maturity. 

By retiring stock when an unprofitable 
surplus is accumulating and by borrowing 
money from banks or others to meet any 
short term needs, building and loan asso- 
ciations are able to adjust their money to 
make the best returns for their preferred 
stock holders, that is stock holders who 
are borrowers and stock holders. 

The rates on money borrowed from 
building and loan associations are higher 
often than the land contract or the 
straight mortgage plan mentioned above. 
The fact that their loans are liberal and 
that you may become both a stock holder 
and a borrower, thus earning liberally on 
your stock, makes them popular. That 
they are good agencies for the encourage- 
ment of home building is attested by the 
small number of foreclosures. In its hun- 
dreds of transactions it is rare indeed that 
a building and loan association is com- 
pelled to foreclose a mortgage. Most 
building and loan associations allow the 
privilege of prepayment of notes also by 

[86] 



OWNING A HOME 

giving notice of sixty or ninety days. This 
enables them to make larger loans if need- 
ed or retire stock, adjusting the income 
of the association to its immediate needs. 

Perhaps one of the very best plans of 
purchasing a home is to invest in building 
and loan stock up to at least double the 
amount you desire to borrow on the home. 
You then become a preferred stock holder 
which means your stock will not be forci- 
bly retired until it is mature. Interest and 
premium on your stock will equal or excel 
the amount of interest on the money you 
have borrowed. The cost of the stock plus 
your monthly premium and interest will 
often be but little more than you would 
pay in rent. When your stock matures 
your loan will have been paid in full and 
you will have returning to you in cash an 
amount equal to or greater than your 
former loan. The total amount paid in 
will equal just about your loan, plus your 
credit after paying the loan coming to you 
in cash. You will have had the use of the 
loan during a period of time, perhaps from 
seven to ten years, and your total amount 
paid out will equal the original loan and 
your cash returned on the matured stock. 

What has been said so far in this chap- 
ter refers to the financing of a home. The 
same advice will apply just as aptly to 
financing payments on rental property, 
other than your home. The same condi- 
tions as to location, plans, abstract of title, 

[87 ] 



SAVING AND INVESTING MONEY 

deed, and methods of financing in case 
you do not have the ready cash, will apply 
to property investments for rent the same 
as if you were buying for your own home. 

In addition to the above, there are oth- 
er points to consider when investing in 
rental property, points not figuring so 
largely in a home. The first is the demand 
for rental property of the kind you are 
able to own. Plan, construction, location 
and convenience are just as vital in rental 
property as in your own home if you want 
to make a good investment. If there is a 
demand for rental property sufficient to 
pay you good returns on your investment, 
then, these will determine whether the 
property will rent regularly to good ten- 
ants or stand idle several months each 
year. Cities in which there are a large 
number of salaried persons employed are 
usually better places for good rental prop- 
erty. In cities in which there is only a 
small proportion of salaried persons em- 
ployed, rental property is not so good. 

A second item to be considered in rental 
property which is not so great a factor in 
a home, is the probability of it standing 
vacant. This will be determined largely 
upon the general demand for rental prop- 
erty of the class to which it belongs and to 
its location, conveniences, the way it is 
kept up, and the rental price. 

When considering rental property as an 

[88 ] 



OWNING A HOME 

investment there are seven items to con- 
sider. 

1. Count interest on the money put in- 
to the property at the same rate of other 
good safe investments that are open to 
you. 

2. Allow a sinking or reserve fund for 
depreciation on account of wear or abuse 
of the property. 

3. Estimate taxes and insurance, not 
neglecting street improvements and spe- 
cial assessment for any purpose. 

4. Count maintenance such as decorat- 
ing, painting, plumbing, repairs, water 
tax, light, heat, and janitor service if these 
four latter are paid by you. 

5. Figure management at the rate it 
would cost you should you place the prop- 
erty in the hands of a real estate firm to 
be looked after. Should you leave the 
locality without selling the property, you 
would be compelled to pay this manage- 
ment expense. If you do that work you are 
entitled to estimate this when seeking net 
return on your investment. 

6. Keep a reserve for vacancy. This, 
as stated above, will depend upon the gen- 
eral demand for such rental property, 
plan, location, convenience, etc. It is often 
as high as ten percent of the time, and 
even in slack times larger still. You must 
make allowance for this in the very best 
property under the very best conditions. 

[ 89 1 



SAVING AND INVESTING MONEY 

The greater the demand, the better the 
property, and the lower the rental price, 
the less need be the rate for this item. 

7. You should make allowance for in- 
crease or decrease in the land values in 
the location in which the property is found. 
If the immediate section is growing and 
improving rapidly this increase may be 
five percent or more a year. It is often 
much less. If the locality is depreciating, 
it may lose five percent or more a year for 
a number of years even though it might 
never reach the vanishing point. 

These seven items must be considered 
carefully by you. Unless the gross returns 
are above ten percent, or the increase in 
land values mentioned in seven above is 
good, rental property is not a big paying 
investment. By the time taxes, insurance, 
repairs and unexpected expenses are de- 
ducted, your ten percent gross gets down 
to less than six percent net. 

A new house does not depreciate as rap- 
idly as an old one. It will need less re- 
pairs during its first ten years than its 
second decade. The cost of maintenance 
of a brick house is less than a frame one. 
But a dilapidated brick house may be 
harder to rent to good tenants than a 
frame one that is equally bad. 

Taxes and insurance will vary with the 
location, cost of property, etc. Modern 
plumbing may increase the rental price 
several dollars on the month and prove a 

190] 



OWNING A HOME 

splendid investment. But modern plumb- 
ing will also increase the cost of mainte- 
nance. Hot water heat will cost more to 
install. If you furnish the heat to your 
tenants there may be a saving in operat- 
ing expenses. Again hot water heat with 
careless or negligent renters is subject to 
freezing pipes, and large repair bills. There 
is no such danger in warm air. The rela- 
tive cost of installation, the cost of run- 
ning expenses and repair bills are items 
to be considered when installing heating 
systems. Some people prefer hot water 
heat thinking it more economical in fuel 
as well as cleaner. Others much prefer 
the warm air, believing that the circulat- 
ing air is far more sanitary. Which sys- 
tem of heating is used most in your locali- 
ty? The kind of heat may increase or de- 
crease the rental demand for the property. 
If the heating system, whatever the kind, 
is poor the property soon gets a black eye 
and is not sought by those who know of it. 
You must depend upon it, the outsiders 
and the neighbors will lose little time in 
pointing out to the renters the defects 
they do not discover for themselves. 

All of these items should be thought 
over before investing in rental property. 
They will vary in different cities and in 
different localities in the same city. In 
some cities you can not rent property un- 
less you have furnace heat. In others 
any heat but a stove would be thought 

I 91 ] 



SAVING AND INVESTING MONEY 

exorbitant. The same condition may be 
found in different parts of the same city. 

The flat or apartment house as an in- 
vestment is worth careful study. In cities 
where land values are high the demand for 
flats is growing. As the years go by flats 
will increase in number rather than de- 
crease. A two flat building will not cost 
twice as much as the same space and con- 
venience in a single house. It takes no 
more ground. It takes no more roof. It 
does not double the labor or material used 
in the construction. While it may not 
rent for twice as much, other things be- 
ing equal, it will rent for considerably more 
in proportion to its cost than the single 
house and thus yield better return on the 
investment. 

Many persons borrowing money to 
build, construct flats or duplex houses, de- 
pending upon the rent of one of them to 
help pay off the land contract notes or the 
building and loan dues. It is often a good 
investment. The growing demand for con- 
venient flats makes them as sure an in- 
vestment as other houses and the rate of 
return is usually better. 

No thrifty man need fear that he can 
not own his own home. He may do so if 
he desires. It is often the best investment 
he can make. He must determine that 
for himself. A mortgage or a lien on a 
home, if the terms are liberal, is no detri- 
ment to its sale. A land contract which 

192] 



OWNING A HOME 

allows a prepayment of notes at face value 
plus accrued interest, is never a detriment 
to the sale of property and is often an 
aid to the sale. The straight mortgage 
plan will more often help the sale than 
hinder, provided these payments due in the 
immediate future are not too heavy. It is 
rare that a building and loan mortgage 
prevents the sale of property. They may 
usually be prepaid by giving sixty days' 
notice. Even if they are not prepayable, 
they are more often an aid in making the 
sale than a detriment. It is rare that 
money is lost by having a mortgage on the 
home unless you are thriftless enough or 
unfortunate enough to let it come to fore- 
closure. Even then you may get some re- 
turn on your equity if you manage it 
properly. 

If you lose money in owning a home it 
is usually attributable to one of the fol- 
lowing causes: 

1. You invest in a home too expensive 
for your income. 

2. You pay more for it than its location 
and cost of construction justify. You let 
the other fellow gobble the profits and you 
accept the loss. 

3. You are a poor judge of location 
values and get into a locality where there 
is little or no demand for property or 
where values are decreasing. 

4. You construct a home devoid of con- 
veniences, grotesque in appearance, or out 

[93 ] 



SAVING AND INVESTING MONEY 

of the ordinary and of a type that few 
people would desire. 

5. You neglect little essentials such as 
closet room, sunlight, location of stair- 
ways, and other things. While you may 
think it matters little, nine other persons 
out of ten will object to them. Think of 
building a home in a northern city where 
sunshine is so pleasant eleven months of 
the year and then of placing the stairway 
to the south, cutting out all the sunshine 
while the windows are placed at the north. 
Such is sometimes done. The owner then 
will wonder why so few desire to buy or 
rent it. The reason should be clear. 

If you buy or build, using good judg- 
ment, you are not apt to lose money if the 
city is growing, even at a reasonable rate. 
If you build a monstrosity, if you pay ex- 
orbitant prices for a home, if you have 
no sense of value as to location, if you buy 
or build far beyond your means, you may 
lose. It requires judgment to make any 
investment, and an investment in a home 
is no exception to the rule. 



l J4 



REAL ESTATE MORTGAGES 

For safety probably nothing is better 
for the small investor than first mortgages 
on good income producing real estate. 
Where opportunity offers, it is best for 
the investor to see and know the property 
on which he holds the mortgage and the 
character and standing of the person seek- 
ing the loan. The character and standing 
of the borrower is a big factor. It often 
means prompt payment of principal and 
interest which otherwise would be col- 
lected slowly and probably after recourse 
to foreclosure. 

It is not essential to know the property 
personally, provided careful and reliable 
men have looked up the details of appraise- 
ment, abstract of title, proper recording 
of the mortgage, etc. There is often a 
feeling of greater safety if the investor 
knows just where and by what piece of 
property his mortgage is secured. 

Most men are familiar with the details 
of a real estate mortgage. It consists of 
two essential parts. First, there is a note, 
or bond or promise to pay a certain sum 
of money at some future date, at a certain 
rate percent per annum. The essentials 
of a note are so familiar it is useless to 

[95 ] 



SAVING AND INVESTING MONEY 

state them. A mortgage note usually 
states that it is secured by mortgage of 
a certain day and date, rendered by cer- 
tain persons, etc. Second, there is the 
mortgage itself, or trust deed vouching 
the transfer of title and ownership to a 
certain described piece of real estate to the 
owner of said note unless said note is 
paid as specified. If the note is paid the 
mortgage or trust deed is void on and after 
payment of the mortgage note or notes. 

There are certain things that should be 
carefully guarded when you are investing 
in real estate mortgages. 

1. Is the title clear? No one should 
invest in a mortgage until he has an ab- 
stract of title of the property mortgaged 
made by some reliable law or abstract 
firm. This abstract should be brought 
down to the very day and minute of the 
transaction. Frauds have been committed 
by transferring the title to property be- 
tween the time the abstract company certi- 
fies to the abstract and the day of actual 
paying over of the money. While such 
cases are rare, and would be a criminal 
offense as obtaining money under false 
pretense, the money itself might be 
squandered and gone. It would not give 
you value received for your money, per- 
haps, to know the defrauding borrower 
was spending his time in the state prison. 
It might be a consolation but it would not 
return your lost money. 

[ 96 ] 



REAL ESTATE MORTGAGES 

The abstract of title should be care- 
fully examined by a reliable attorney. 
The small investor can not afford to risk 
his money if there is any flaw whatever 
in the title. You should be as careful of 
the title when taking a real estate mort- 
gage as when buying the real estate out- 
right. If there is a flaw insist that the 
owner remedy it legally, else refuse him 
the loan. 

2. Is the property income producing? 
The farm that is producing crops, the 
house that is occupied by the owner or is 
well rented, the business property leased 
by a reliable firm, or the manufacturing 
plant in operation turning out daily the 
products it is constructed to produce, are 
better loan risks than land untilled, empty 
houses, vacant business blocks or closed 
factories. The interest is more apt to 
be sure and should you have to foreclose 
the mortgage you would not have a white 
elephant on your hands. 

3. Is the margin of security ample? 
The larger the margin the better your 
risk. On mortgages running from three 
to ten years, do not loan too much. Fifty 
percent of the real value is enough. 
You want the owner to have equity in the 
mortgaged property sufficient to guarantee 
that he will make an honest and faithful 
effort to pay the debt and prevent fore- 
closure. A good mortgage is one that will 
be paid promptly when due without fore- 

197] 



SAVING AND INVESTING MONEY 

closure, or if foreclosure must be resorted 
to, there will be ample margin for all ex- 
penses and a profit instead of a deficit at 
the end of the transaction. 

It may be hard to believe, but the fact 
remains that many men will mortgage 
property up to and beyond its real value, 
if they can, live on it and use it until the 
debt becomes due, and you foreclose the 
mortgage without making any effort what- 
ever to pay the notes or to redeem the 
property. They have sold it well when they 
secured the loan from you and why should 
they worry. They are more than willing 
to leave the worrying to you. 

4. Is the property located so that it 
will not depreciate in value ? There is often 
a large fluctuation in land values in a 
few years. One suburban city lot upon 
which an investment company loaned two 
thousand dollars, sold fifteen years later 
for five hundred dollars. Evidently there 
had been crooked work or poor appraisers 
for the investment company. 

Poor crops for a number of years, dev- 
astating floods washing away soil or doing 
other damage, may depreciate the value 
of a farm very much in five years' time. 
Change of population, the establishment 
of a factory district in what has formerly 
been a good resident portion of a town or 
city, the abandonment of a railroad termi- 
nus, or street car line, or the removal of 
a large manufacturing plant may depreci- 
[98] 



REAL ESTATE MORTGAGES 

ate the value of a house and lot more than 
half in a few years. On the other hand a 
thrifty farmer may increase the value of 
his farm many percent in five years. A 
house and lot well located in a growing dis- 
trict in a prosperous town or city may al- 
most double in five years. This increase 
in value makes your mortgage more se- 
cure and is a greater guarantee of its 
prompt payment when it is due. Remem- 
ber, however, that the investor in the real 
estate mortgage does not share in its ad- 
vance in value as does the investor in in- 
dustrial stocks. The increase in value is 
greater assurance that he will receive in 
full the amount of his loan when due 
without trouble or delay, but the principal 
and interest will not be one cent more than 
is stipulated. in the original mortgage con- 
tract. 

5. It is necessary that all taxes be 
paid promptly on all property on which 
you hold mortgage and that reliable in- 
surance be carried on all buildings. The 
borrower usually pledges the payment of 
taxes. If they go delinquent the holder 
of the mortgage must pay them and look 
to the borrower for reimbursement. In- 
surance should be carried in reliable com- 
panies. If you own the mortgage, you 
should hold the insurance policy and see 
to it that it contains a clause in your favor 
up to the amount of your mortgage. 
Otherwise, in case of fire or tornado the 

[99] 



SAVING AND INVESTING MONEY 

borrower and nominal owner of the proper- 
ty would have the claim against the in- 
surance company, and you as holder of 
the mortgage might lose. It is necessary 
also that all special assessments against 
the property for any purpose should be 
paid the same as other taxes. These 
guarantees should be stipulated in the 
mortgage. Failure to do any of these 
should terminate the time of the mortgage 
and make foreclosure possible. 

The fact that real estate mortgages may 
lose in case of too high a loan or of too 
great a depreciation in value due to many 
causes, and at the same time that they do 
not share in increase in value except that 
the assurance of prompt payment is 
greater, is overlooked by many investors. 
For this reason good judgment must be 
shown in appraising for loans, or if you 
know the property personally, you must 
estimate its value conservatively before 
making a loan on it. The general condi- 
tions in the real estate market should be 
considered. Be careful of loans made in 
cities or towns enjoying big booms. It is 
easy to get values fictitious and appraisers 
may grow over optimistic. The same is 
true of farm lands in sections far away 
from markets which are being rapidly 
developed and exploited. Optimistic ap- 
praisers are prone to estimate values too 
high enabling the borrower to obtain a 
[ 100] 



REAL ESTATE MORTGAGES 

loan so large that depression endangers 
the security of the mortgage. 

Good productive farm lands, occupied by 
the owner else closely supervised by him, 
rent producing resident or business prop- 
erty in growing towns or cities, where ap- 
praisements are conservative, make safe 
risks, provided the title is clear, the mort- 
gage and the notes properly signed and 
properly recorded in the county records. 
An unrecorded mortgage is worthless pro- 
vided other claims have been recorded. 
The date of record by the county recorder 
gives validity to a mortgage claim. Hence 
in loaning money on a mortgage note in- 
sist on a clear title, and prompt recording 
of mortgage. Should the money obtained 
from you be used to lift a former mort- 
gage, make sure the proper release of the 
mortgage is entered on the record books 
and that your own mortgage is properly 
entered for record before the transaction 
is considered complete. The fact that a 
mortgage usually runs from three to ten 
years and that you can not begin fore- 
closure proceedings or sue on notes before 
they are due makes it all the more im- 
portant that records are correct at the time 
you pay out the money. Otherwise, a long 
time may elapse before you are aware that 
there are flaws in the contract. 

A second mortgage on real estate serves 
to give more value to a first mortgage on 

[ 101 ] 



SAVING AND INVESTING MONEY 

the same property instead of decreasing 
its value. If A holds a thousand dollar 
mortgage against a farm and B loans an- 
other thousand on the same farm, then B 
must see that A's mortgage is paid else 
B's mortgage itself would be worthless. 
Should A foreclose the mortgage, B would 
have to bid it in and repay A or B would 
probably lose his money. 

When real estate mortgages are due and 
unpaid the holder of the notes brings suit 
for foreclosure of the mortgage. The 
court gives judgment for the amount and 
orders the sale of the property, usually 
at public auction. All that is bid for the 
property over and above the amount of the 
mortgage notes and interest, plus the cost 
of the sale goes to the owner of the real 
estate. If the real estate does not sell for 
enough to pay the notes, the owner of the 
notes may still have a claim against the 
debtor, provided he is worth it. Often the 
holder of the mortgage notes bids in the 
property himself, in case there are no other 
bidders, at the amount of the notes and 
probable expense of the foreclosure. 

Regardless of who bids in the real es- 
tate, the owner has a year in most states 
in which he may redeem it. He can redeem 
it by paying to the sheriff the amount of 
the notes and interest plus the cost of 
the foreclosure with interest from the date 
of the sale to the date of redemption. 
The owner may raise this money in many 

[ 102 1 



REAL ESTATE MORTGAGES 

ways. He may obtain it from other 
sources. He may remortgage the property 
to some other party for enough money to 
redeem it. He may sell it to any buyer he 
can find, the buyer taking over the real 
estate subject to this prior lien. The pur- 
chaser, by redeeming the foreclosure, pay- 
ing the notes and interest with foreclosure 
costs with interest may obtain a deed as 
clear and free from flaw as if there had 
never been a foreclosure sale. 

It will be seen from this that the man 
holding mortgage notes on real estate may 
be safe as to principal and interest but 
that he stands a poor chance of any great 
gain by foreclosure. If there is much mar- 
gin between the real worth of the property 
and the amount at which it is bid in at the 
foreclosure, the owner inside of a year will 
raise money enough to redeem it, or he will 
sell his equity to some one who will redeem 
it and thus acquire a clear title for him- 
self. 

Testing real estate mortgages by the 
five principles underlying good investments 
formerly stated we find that they possess 
three of the five qualities. 

1. Principal and interest are safe. 

2. The rate of income is good. 

3. They are poor convertibility into 
cash. 

4. They never increase enough in price 
for the gain to be worth consideration. 

5. They are stable in market price. 

[ 103 ] 



SAVING AND INVESTING MONEY 

They are weak when tested by con- 
vertibility and increase in value for the 
following reasons : 

1. They are not listed. There are but 
two things to do with them. You may 
hunt up some one else who will take them 
off your hands. He is very apt to require 
you to discount them for cash, or you may 
occasionally find some one who will loan 
you direct and take an assignment of the 
mortgage notes as collateral. You will 
pay as large a rate on your own note as 
you receive on the mortgage and even 
then may have to pay a bonus for ready 
cash. Thus it is seen they are very poor 
convertibility. 

2. The holder of mortgage notes does 
not share in the increase in value of the 
real estate. In case of foreclosure, if there 
is much margin, the owner or some of his 
friends will redeem it, or he will sell his 
equity to some one who will redeem it. 
These things make any increase in value 
almost out of the question. 

To complete the transfer of mortgage 
notes legally requires the recording of the 
transfer on the county record books with 
the payment of the statutory fees. For 
this and other reasons, they are not listed 
on exchange. The fact that they are not 
listed, prevents their fluctuation in price 
with the money market. The holder of 
mortgage notes, however, who is compelled 
to realize on them in times of financial 

[ 104 1 



REAL ESTATE MORTGAGES 

stress finds that sales are extremely slow, 
unless hastened by good big discounts, or 
high commissions to real estate brokers. 
If you do not need the cash, mortgage 
notes may be carried through periods of 
close market and financial stress with lit- 
tle or no depreciation in value, and if the 
notes are secured by improved income pro- 
ducing property, without much fear of 
losing prompt payment of interest and ab- 
solute security of principal. 

For the safe investment of trust funds 
over long periods, or for placing your own 
savings where safety and income are the 
big requirements, real estate mortgages 
are hard to excel. They are poor invest- 
ments for a business surplus because they 
are slow convertibility. The business sur- 
plus is often needed on tap at short no- 
tice. Real estate mortgages are decidedly 
poor on this requirement. They are es- 
pecially adapted to the ordinary require- 
ments of savings bank funds. Under usual 
conditions only a small portion of savings 
bank funds are needed to be kept in liquid 
form for quick convertibility. The safety, 
high income, and freedom from fluctua- 
tion, make them especially desirable for 
trust and savings funds. Safety and in- 
come are the prime factors sought in such 
investments and good real estate mort- 
gages on improved property possess these 
two qualities in a high degree. 

From the broader view point of large in- 

[ 105 ] 



SAVING AND INVESTING MONEY 

vestors, real estate mortgages are best just 
at the close of a period of business depres- 
sion. Real estate values are then at their 
lowest. Appraisements at this time are 
apt to give the maximum margin of securi- 
ty. With returning business real estate 
values increase, giving wider and wider 
margin of surety. At such times they 
compare favorably with bonds and other 
investment securities which are subject to 
such wide variations of quotation. At this 
time the latter are apt to be at the lowest 
margin of security, while real estate mort- 
gages are at their highest. After a dec- 
ade of business prosperity the cases are 
reversed. 

For a number of years there has been a 
growing business in real estate mortgages 
by investment companies placing on the 
market guaranteed real estate mortgages. 
These sell more readily. The company 
guarantees the prompt payment of the 
mortgage and it also collects and remits 
the interest promptly, either annually or 
semi-annually, to the holders of the mort- 
gages it handles. These firms are in reali- 
ty real estate brokers and receive for their 
services from one half to one percent an- 
nually on the amount of the mortgages 
handled. That is, a mortgage note bear- 
ing six percent interest is resold to the 
investor so as to yield him five to five and 
a half percent income. 

[ 106 1 



REAL ESTATE MORTGAGES 

These mortgage investment companies 
serve two good purposes : 

1. They scatter risks over wide areas. 
A local decline in one place can be borne 
easily by them. If they are conservative 
in their loans, as many of them are, their 
guarantee adds to the value of the risk. A 
local decline over a limited area may be- 
come so severe that it will endanger the 
margin of security over that section. Un- 
less a general decline of forty percent or 
more over a large area should occur, it is 
not apt to endanger the guarantee of those 
companies which appraise conservatively 
and refuse to loan more than sixty percent 
of the appraised value. Should values de- 
cline over wide areas sufficiently the guar- 
antees might become worthless by the 
company becoming insolvent. In this re- 
spect they are like fire insurance com- 
panies, the wider their field of operation, 
the safer are the policies. Losses in one 
section are offset by gains in other places. 
These investment companies are safe on a 
rising market. Long continued general 
depression is the only thing that would test 
the worth of their guarantee to its limit. 

2. These investment companies search 
titles and see to it that taxes, assessments 
and insurance are kept paid. This is looked 
after by experienced men who understand 
the detail and the business points involved. 
It is a real service, much needed. Very 

[ 107 ] 



SAVING AND INVESTING MONEY 

often their service in this line is more 
trustworthy than if the individual should 
undertake to do it himself. Attorneys of 
long experience pass upon the title. If 
there is a shadow of flaw the loan is re- 
jected. Their experienced agents see that 
all documents are properly signed and re- 
corded. They look after the small details 
so essential to the safety of a mortgage 
loan. These details may be overlooked by 
good business men because of inexperience 
in dealing with them. 

Taking it all in all, the conservative in- 
vestment company that guarantees its 
loans performs a worthy service. It earns 
for its clients in additional safety and in 
labor performed the rate of brokerage it 
charges for handling the business. Unless 
you can see the property upon which you 
loan, and in a sense become a judge of its 
value yourself and unless you have the ad- 
vice of a competent attorney with ex- 
perience in looking up titles and records 
and drawing legal papers, it is safer for you 
as a small investor to buy your real estate 
mortgages, guaranteed by a good invest- 
ment company, known for its safe and 
conservative investments. 

The Farm Loan Act passed recently by 
Congress will have little effect upon in- 
vestments in Real Estate Mortgages. It 
may reduce interest rates slightly. It may 
encourage thrift by requiring borrowers 
to meet investments promptly at short 
[ 108 ] 



REAL ESTATE MORTGAGES 

intervals. It may cut out a few farm loan 
sharks but it is doubtful whether it affects 
general real estate mortgages in any ap- 
preciable manner. The chances are its ef- 
fect here will be as small as the influence 
of the State Life Insurance Companies of 
recent years has affected the writing of 
life insurance in the great life insurance 
companies. Neither the company or the 
agents have been able to realize any com- 
petition from the state. After some years 
of readiness to insure the lives of its citi- 
zens scarcely a state owned life insurance 
company has a corporal's guard of persons 
insured in it. 



[109] 



INDUSTRIAL STOCKS AND BONDS 

Industrial stocks and bonds embrace the 
widest variety of investments. More 
money is invested in these than any other 
form of security. Great fortunes have 
been made in industrial stocks, and much 
money has been invested in worthless 
stock upon the strength of the great suc- 
cesses. The successes are used as adver- 
tising. Because some great successes have 
been made, is no proof that all stock in- 
vestments will prove the same. Industrial 
stocks vary from the best paying invest- 
ments down to a mere waste of money. 

No infallible law for selecting industrial 
stocks and bonds can be laid down. The 
personnel of the firm, and the character of 
the business, determine the profit, the safe- 
ty, or the weakness of the investment. 

Let us remind you once more of the 
fundamental difference between stocks and 
bonds. 

Stock is an equity only. It may be the 
greatest money maker or the very worst 
failure. Stockholders share in the net 
profits of a business enterprise and must 
pay all the losses up to the par value of 
their stock. Often under certain articles 
of incorporation, they must stand assess- 
l no l 



INDUSTRIAL STOCKS AND BONDS 

ments for losses too. Stock in a success- 
ful firm or incorporation may be a verita- 
ble gold mine of dividends. Stock in an 
unsuccessful firm or incorporation may 
prove a dumping ground for your accumu- 
lations of a life time. The highest suc- 
cesses and the deepest failures are found 
in investments in industrial stocks. 

Bonds are promises to pay. There are 
no legitimate dividends on stock until all 
interest and all sinking fund requirements 
of the company have been fairly provided 
for. If you buy a bond, you know that if 
the company is solvent when the bond be- 
comes due, you will get payment of the 
bond and interest in full. If you own 
stock in a company, the only way to get 
your money back is to find some one who 
wants it badly enough to pay you for it and 
take it over. The only hope for dividends 
on the money invested in industrial stock 
is for the company to do enough business 
at a profit to pay dividends out of its net 
earnings. 

Stock of good well known industrial 
companies is widely distributed. The well 
established manufacturing company, pay- 
ing dividends over a period of years, usual- 
ly finds a ready sale for any stock left in 
its treasury unsold. Such a concern often 
finds it easy to double or treble its capital 
at a good premium for increasing its out- 
put in case expansion is decided upon. 

A caution here may be given you. Many 

[ill] 



SAVING AND INVESTING MONEY 

old and reliable firms, paying good divi- 
dends over long periods, pass into the con- 
trol of new, aggressive, ambitious, and 
sometimes less experienced officials. With 
the name and the fame of the firm to build 
on, they strike out into new and untried 
lines. This may be the proper thing to 
do. Then again it may prove a costly ex- 
periment after a generation of financial 
success. Old plants are rebuilt. Great 
new plants are provided. The new officials 
cut a splurge, and it looks for a season 
that the reorganized firm were revolution- 
izing things. The capital stock is doubled, 
trebled or quadrupled, and often sold at 
a handsome premium. 

The funds from the sale of this new 
stock go into magnificent plants which 
may lie idle much of the time, great office 
buildings, and new and untried equipment. 
After a few years of gush and gusto the 
hard truth must out. It does not pay. 
Reorganization begins, ending too fre- 
quently in the hands of a receiver. 

The old successful company that is 
doubling or trebling its stock should be 
scrutinized as closely before you invest in 
it as the new and untried concern. It 
usually means that they are branching out 
into new and untried lines. Unless the 
new enterprise of the old company stands 
the same careful scrutiny that you would 
give a new and untried firm, their stock 
should be looked upon with suspicion. 
1112] 



INDUSTRIAL STOCKS AND BONDS 

Scores of great corporations have doubled 
their stock in less than five years before 
going into the hands of a receiver. A 
thoroughly prosperous company should be 
able to build up a surplus for expansion 
and new enterprises without increasing 
their capital stock. The reason stocks in 
some great concerns sell so high is often 
because there are big undivided profits 
used as working capital in which the 
shares will participate when this surplus 
is distributed. So often do firms increase 
their capital stock just before financial 
reverses become openly apparent, that 
many conservative investors question and 
scrutinize new stock issues of old firms 
more carefully than any other stock in- 
vestments. Unless there is proof positive 
that a firm can double its business and 
more than double its profits, there is no 
justification in it doubling its stock. If 
it does, it is at the expense of its present 
stockholders, because it decreases their 
legitimate dividend earnings. 

Many corporations divide their stock 
into common and preferred. The pre- 
ferred stock is guaranteed a certain rate 
of dividend before the common stock can 
secure any dividend at all. For example, 
if an incorporation capitalized for two 
hundred thousand dollars, has fifteen hun- 
dred shares of common stock and five hun- 
dred shares of preferred stock, the pre- 
ferred stock may be guaranteed seven per- 

[ 113 1 



SAVING AND INVESTING MONEY 

cent dividend. Owners of the common 
stock will receive no dividend whatever 
until the owners of the preferred stock se- 
cure their dividend of seven percent. 

Naturally, the preferred stock is con- 
sidered the safest investment and usually 
sells best on the market. There may be 
certain exceptions. If the dividends of 
the company pay more than seven percent 
on all outstanding stock, the preferred 
stock gets only seven percent, the rate 
guaranteed them. In such a case the com- 
mon stock would get the balance which 
would make it more than seven percent. 
The common stock might go to ten or 
twelve percent while the preferred would 
never go above the seven percent guaran- 
tee. 

If the earnings of the company dwindled 
down until there were not enough to pay 
the guaranteed rate on the preferred stock, 
then the stock holders must lose. The 
guarantee is worthless unless the company 
is earning money enough to pay the guar- 
anteed dividends. 

Should the earnings of a company, how- 
ever, run so low that the guaranteed divi- 
dends on the preferred stock could not be 
paid for a period of time, and later the 
company become prosperous again, the 
holders of the preferred stock would be 
entitled to their deficit in dividends during 
this time, before the owners of the com- 
mon stock would receive any dividends. 

[ 114] 



INDUSTRIAL STOCKS AND BONDS 

Before you buy stock in any concern, 
determine if they have preferred stock, 
and the ratio of this preferred stock to 
the common. Do the articles of incorpora- 
tion permit them to issue preferred stock ? 
If so, under what conditions? Have they 
issued it yet? What effect is it likely to 
have on the common stock if it is issued? 
Is the stock assessable in case there is a 
deficit in the treasury ? What is the limit 
of the assessment? Is there stock still 
held in the treasury unsold? If so, how 
will it affect the dividends, should it be 
sold? Are dividends paid on treasury 
stock to build up a surplus for the expan- 
sion of the business? If so, would your 
stock share in the distribution of this 
treasury stock later? Is it possible for 
one individual to own the majority of the 
stock of the company ? Are the large stock 
holders apt to be permanent investors in 
the company ? Do they have a real living 
interest in the concern, or is their stock 
for sale any time they can dispose of it at 
a profit? Do the leading stock holders 
know the ins and the outs of the business, 
or are they simply men with money in- 
vested in the business as long as it pays 
dividends, knowing nothing of how to run 
it? What do you know of the personnel 
of the leading stockholders and managers ? 
Are they men accustomed to succeed? 
Have they made good in other lines? Do 
they understand their present line of 

[ 115 ] 



SAVING AND INVESTING MONEY 

work? Are they promoters simply, ac- 
customed to starting enterprises, putting 
them on their feet for the time being, 
and then unloading their investment at a 
profit and passing on to new affairs, or, 
are they men of steady habits, building up 
a permanent business seriously and de- 
termined to make it go ? 

These are vital questions to you if you 
invest your savings in industrial stocks. 
If the enterprise is new and untried, if it 
is an issue of new stock by some old con- 
cern under a spirit of aggressive man- 
agement, or if it is led by men who are 
professional promoters, rather than actual 
managers, you may do better to buy stock 
in some well established more conservative 
firm. Your savings are safer and your in- 
come taken over a series of years will be 
surer. 

There are many good industrial stocks 
that are safe and pay well. No one could 
specify them in a book like this without 
being unjust to others just as good. Ask 
your banker about them before you buy. 
How much money would he lend you per 
share on the stock assigned as collateral? 
This is a good test. Of nearly a quarter 
of a million firms and incorporations in 
this country, almost half of them are fail- 
ures. Many others pay only doubtful divi- 
dends. A small minority only are high 
class investments. Even in some of the 
very best paying ones, the freezing out of 
[116] 



INDUSTRIAL STOCKS AND BONDS 

hundreds of small stockholders was one of 
the tricks of the trade that made the re- 
maining stock holders immense profits. 
The small stock holder after passing divi- 
dends for a number of years is quite will- 
ing to cash out at a fraction of the cost 
of his stock. When a controlling interest 
is secured by those seeking control at a 
fraction of the par value a reorganization 
is secured and dividends become large and 
sure. The great number of small stock 
holders frozen out by the larger ones has 
served to discourage the sale of stock in 
many worthy new enterprises in the past, 
and it is inevitable that it be so. Many 
men of means decline to own stock in any 
enterprise unless they can own enough to 
make them a force in its management. 

Industrial bonds have all the strength 
of industrial stocks as to safety. They 
are promises to pay. If the concern issu- 
ing them is worth it, they will be paid. 
Applying the principles of a good invest- 
ment stated in a former chapter to indus- 
trial bonds, there are many considera- 
tions. 

1. As to safety of principal and inter- 
est. This, as in all other forms of invest- 
ment, depends upon the margin of security 
in excess of the company's bonded indebt- 
edness. With industrial bonds this mar- 
gin is not always easily determined. Even 
when the margin seems small, it may have 
much additional strength simply from the 

[ H7 ] 



SAVING AND INVESTING MONEY 

fact that they have an equity in an active 
working concern. To determine the value 
of the security behind industrial bonds 
there are five indications upon which esti- 
mates of safety are based. Each of these 
will be discussed in detail. 

(a). What is the value of the real es- 
tate owned by the concern? If the value 
of the real estate owned by them is equal 
to or greater in value than the total out- 
standing bond issue, the bonds are safe be- 
yond doubt. They might be slow to realize 
the cash on, but they could not be ques- 
tioned as to safety. However, you can not 
always rely upon the real estate value 
marked upon the books of the company. 
Frequently the cost shown by the books 
has been artificially raised, payment hav- 
ing been made in securities whose market 
value is below par. On the books the par 
value of such paper is shown. In reality 
the cash market value is the one in which 
you are concerned. The records of one 
company showed land valued at twenty 
thousand dollars. In court proceedings it 
was shown that the bulk of this land was 
paid for by stock in a company which was 
on the verge of bankruptcy. The market 
value of the stock at the time it was trad- 
ed to the manufacturing company was only 
twenty-five cents on the dollar. Six months 
later it was less than fifteen cents on the 
dollar. If the properly appraised value of 
the real estate is near the total bond issue, 

I 118 ] 



INDUSTRIAL STOCKS AND BONDS 

you may feel reasonably sure the bond is 
safe. 

(b). What are the net quick assets of 
the company? If the real estate value is 
far below the bond issue, you must rely 
upon the net quick assets of the company 
largely for safety. In practically every 
company there are two kinds of assets, 
property assets that are permanent, and 
fixed, and current assets which are fluid. 
The real estate and the plant equipment 
are usually lumped into one item, as cost 
of property. Inventories of products on 
hand, bills and accounts, money due from 
agents, notes and mortgages on products 
sold but not yet paid for, marketable se- 
curities of any kind, cash on hand or in 
bank, all these things which can be con- 
verted into cash quickly, are known as the 
liquid or quick assets. 

Capital liabilities are easily determined. 
They are made up of the par value of the 
stocks and bonds outstanding against the 
company. The current liabilities comprise 
bills and accounts payable, borrowed 
money other than receipts from sale of 
bonds, the payroll, and taxes and interest 
not yet due. 

The current accounts are of great sig- 
nificance in determining the standing of a 
company. If the cost of the plant and the 
grounds is in excess of its appraised value, 
the market for its stocks and bonds is be- 
low par. If, however, the current liabili- 

[ 119 1 



SAVING AND INVESTING MONEY 

ties exceed the current assets there is a 
deficit regardless of what the books of the 
concern may be made to show. If the cur- 
rent assets is greater than the current lia- 
bilities, the difference is known as the 
working capital of the concern. 

The stronger the company the greater 
the proportion between the current assets 
and the current liabilities. The current 
assets should be from three to five times 
the amount of the current liabilities to 
show a company in a strong strategic con- 
dition. 

The bonded indebtedness should never 
exceed the net quick assets unless the 
company has real estate ample to cover 
the difference. Bonds should never be 
more than the company's net quick assets 
plus one half of their real estate value. If 
such is found to be the case, the bonds are 
not good investments at their par value. 
Often good companies agree in their bond 
indenture to keep constantly on hand net 
quick assets exceeding the bond issue by a 
good margin. This is always a good safe- 
guard to the bond issue. When bonds are 
secured in this way they are safe and near- 
ly always command a good market. 

If capital liabilities just balance the 
property assets, it is clear that the surplus 
will balance the net quick assets. If the 
net quick assets are larger than the sur- 
plus it indicates usually that money has 
been borrowed to create working capital. 
[ 120] 



INDUSTRIAL STOCKS AND BONDS 

This may be advisable in many cases. A 
company that is engaged in a business 
that is seasonable may borrow money from 
the bank at times to run them through the 
short season of excessive outlay to better 
advantage than to create a surplus fund 
from stock sale or bond issue, to tide over 
such periods. In companies where busi- 
ness is not variable but runs uniformly 
throughout the year, such a plan of bor- 
rowing working capital from the bank is 
looked upon as a weakness. 

The strongest companies are those 
which create a working capital out of 
earnings by curtailing dividends until a 
surplus is accumulated. This enables them 
to be independent of the local money mar- 
ket and is a strong feature in any concern. 
A big undivided surplus of working capital 
is an enviable asset for any firm. 

The company that has large outstand- 
ing current liabilities is always weakened. 
When money is close they may be unable 
to meet their current liabilities, and notes 
falling due may not be renewed without 
costly bonuses for obtaining cash. 

(c) What are the net earnings of the 
company? This is of first importance in 
estimating the strength of an industrial 
corporation. You should look up the record 
covering a period of years to see whether 
the net earnings are uniform or the result 
of some transient condition. It will tell 
you whether the company's earning power 

I 121 ] 



SAVING AND INVESTING MONEY 

is stable or variable. Does the product 
enjoy a steady demand? Are the prices 
uniform ? If the products are steady in de- 
mand and the prices uniform there is a 
legitimate reason for some of the business 
being done on capital derived from bond 
sales. If the business fluctuates and there 
are rapid changes in the prices of the 
product the bonds are not inviting as an 
investment. The net earnings of a com- 
pany whose bonds are desirable should be 
at least three times the interest on the 
bonds, plus taxes and sinking fund. The 
greater the net earnings over the expenses 
the better the bonds. 

(d) What is the form of issue ? If the 
bonds run for a long time the property will 
depreciate in value before the bonds are 
due. This must be met in one of two ways. 
One way is to establish a sinking fund 
whereby a part of the bonds selected by 
lot is to be paid each year. Another way 
is to issue the bonds in serial form, a defi- 
nite number becoming due and payable 
each year. In either case the bonds retired 
each year should be in excess of any possi- 
ble depreciation in value. In this way the 
margin of security increases each year and 
this is of great worth to the bond issue. 

(e) What is the efficiency of the man- 
agement and control ? This is the greatest 
question of all in considering industrial 
stocks or bonds. The ability and the in- 
tegrity of the men in charge spells success 

I 122 ] 



INDUSTRIAL STOCKS AND BONDS 

or failure nine cases out of ten. Poor 
judgment, vacillating policies, weak execu- 
tive force, kills the best of enterprises. 
Good judgment, strong, firm policies, and 
efficient executive ability, will make any 
legitimate business go. 

After all is said, you must judge the 
safety of any individual bond upon its own 
merit. No law is uniform. Because one 
company has made a success or failure in 
a certain line is no evidence that another 
company will do the same. It all depends 
upon the business conditions at the time 
and the business brains behind it. You 
must consider each bond issue upon its own 
merits largely. 

2. The rate of income. This varies and 
can not be told positively. On an average, 
industrial bonds have paid the highest of 
all bond issues. The risks, however, are 
greater than any other form of bond. The 
income on good industrials is one of the 
greatest advantages they possess. The 
rate is usually above municipal, railroad, 
or public-utility bonds. If there is safety 
they are apt to pay the best income of all 
bond investments. 

3. There is no uniformity in the con- 
vertibility of industrial bonds. Some sell 
well over broad markets. Others are as 
hard to convert as real estate mortgages. 
The degree of convertibility is as various 
as the bonds themselves. You must judge 
each issue by itself. Like the item of 

[ 123 1 



SAVING AND INVESTING MONEY 

safety, you can not judge one by another. 
The bonds of well known industrial com- 
panies sell readily. Bonds of other com- 
panies, not so well known, but just as 
strong, and just as safe, may be hard to 
sell. They are little sought after and must 
depend upon a limited market for sales. 

4. The prospect of increase in value 
varies. Unless there is a market for your 
bond any increase in security which would 
increase its value would be of little ad- 
vantage. It might make it safer to you but 
would not increase the demand sufficient- 
ly to increase the price to any great ex- 
tent. Bonds of good well known companies 
with large market quotations may grow in 
value and yield good returns by increase 
in price. On the other hand if the company 
is not doing well the market value of the 
bond may materially decrease. 

5. Industrial bonds are not stable in 
market price. They fluctuate rapidly with 
the condition of the money market. They 
may vary much from causes entirely out- 
side of any quality of the bond itself or 
condition of the company behind the bond. 
The bonds of the larger better known com- 
panies fluctuate the most. This comes 
from the wide range of the market and 
the exchange quotations which vary daily 
with the money market conditions. The 
bonds of smaller and less significant com- 
panies are often most stable because they 

[ 124] 



INDUSTRIAL STOCKS AND BONDS 

are unknown. They are stable because 
there is no market for them. They are in- 
active. Their stability is due more to their 
inactivity than to any worth or lack of it 
in the bonds themselves. 

Industrial bonds are usually poor invest- 
ments for a business surplus. No indus- 
trial bond combines all the qualities neces- 
sary for investing a business surplus. 
Safety of principal and interest, high re- 
turns, quick convertibility, and stable mar- 
ket price are the qualities sought in the 
investment of a business surplus. Many 
industrial bonds will combine two of these 
qualities. Some may combine three of 
these qualities, but it is almost if not quite, 
an impossibility to secure an industrial 
bond combining all four of these qualities. 
In addition to this it is not wise to invest 
one business surplus in another business 
which is apt to be affected by the same ad- 
verse conditions in the money market. 

For the investment of private funds the 
case is quite different. A keen business 
man may have funds which he may well 
risk in a degree for the high rate of income 
he may secure or by the bright prospect 
of increase in price as the money market 
becomes easier. Using his keen and well 
trained business judgment he may see at 
once that there is safety, good returns, 
and probable increase in price on his invest- 
ment. In such a case high grade industrial 

[ 125 ] 



SAVING AND INVESTING MONEY 

Donds are hard to beat, even if it is im- 
possible to find them that will supply all 
five of the principles of good investments. 
Industrial stocks and bonds will always 
be a fertile field for great investment. 
Companies will come and companies will 
go. New enterprises will arise and sup- 
plement or succeed those of the present 
day. Present day conditions make it abso- 
lutely necessary to issue industrial stocks 
and industrial bonds. It is the age of in- 
corporation. Vast capital is necessary to 
do modern businescs under modern meth- 
ods and conditions. Stock companies and 
incorporations will increase rather than 
decrease. They may be restricted by 
statute. They may be crippled by poor 
legislation or strengthened by wise laws, 
but they are here to stay and to increase in 
number and strength. They will continue 
to appeal to the great majority of invest- 
ors, both reckless and conservative. As 
an investor you must learn to question 
the individual concern in which you think 
of investing and then stand the results 
of your own judgment. 



126 



MUNICIPAL AND PUBLIC- 
UTILITY BONDS 

Municipal bonds have been favorite in- 
vestments for a number of years. Few 
states have ever repudiated a debt. No 
American city has ever attempted repudia- 
tion. It is seldom that there is any ques- 
tion of the legality of municipal bonds. 
It is rare that all the legal technicalities of 
a bond issue are not carefully followed. 
This has made municipal bonds sought by 
investors of money where safety is the 
one great requisite. The strictest regula- 
tions of the legal requirements for bond 
and trust companies recognize municipal 
bonds as standard. 

The phenomenal growth of American 
cities, with the great demand for public 
improvements, such as street paving, 
sewer construction, school building, drain- 
age, etc., has placed millions of dollars 
worth of municipal bonds on the markets. 
Notwithstanding the enormous issue, they 
have found a ready market at a low rate 
of interest. 

The city charter or the state law usual- 
ly limits the total bond issue of a munici- 
pality to a certain percent of the assessed 

t 127 1 



SAVING AND INVESTING MONEY 

valuation of the property in the munici- 
pality. This restriction is a good thing. 
It has done more than anything else to add 
safety to municipal bonds. Were it not for 
such legal restrictions, cities swinging to 
the floodtide of optimism under an ag- 
gressive administration would run mad on 
bond issues. Like a spendthrift individual, 
there would be no limit to their promise 
to pay. 

Bond issues in American cities are usu- 
ally made upon the direct vote of the peo- 
ple, the bonds being for a specific purpose 
and to run a certain number of years, sel- 
dom more than ten. These bonds are in a 
sense a direct lien upon the taxable proper- 
ty of the city or district issuing them. 
This lien is forced through a tax levy 
against the property, and is sufficient for 
the accruing interest and to meet the pay- 
ment of the bonds as fast as they come 
due. The courts have always enforced the 
levying of such a tax in case there was 
any attempt to repudiate a legal issue of 
bonds. Bond issues are prior liens upon 
the taxable property of the city, hence the 
high rating in financial circles. The only 
valid way of escaping these obligations 
after they are legally voted and issued 
would be for the municipality to disin- 
tegrate until there would not be property 
enough left to pay the bonds. You can 
safely judge whether such a thing is in 
[ 128] 



PUBLIC UTILITY BONDS 

the realm of possibility at the time you 
make the investment. 

In considering the investment qualities 
of municipal bonds the following points 
should be investigated. 

1. What is the proportion of the total 
value of the property of the city to the 
total bond issue, including the present is- 
sue ? Constitutional limitations confine 
this anywhere from two to ten percent of 
the total taxable assessment of the mu- 
nicipality. If this issue should raise the 
total bonded indebtedness of the city above 
the constitutional or legal limitations, the 
issue would be void. The nearer this issue 
brings the total bonded debt to this con- 
stitutional limitation, the less desirable 
the issue, although it may be safe. 

2. Were all the legal technicalities for 
voting the bonds carried out? This in- 
volves the proper election notice, arrange- 
ment of ballot, the legality of the count, 
proper majority, etc. These technical 
points are usually examined by a compe- 
tent attorney of some bond dealing com- 
pany, and properly certified to over his 
signature. Also city officials in calling 
such election must certify to the total out- 
standing bonded indebtedness, the total 
assessed valuation of the property, and 
other points that would affect the legality 
of the proposed issue. 

3. Is the purpose of such bonds legal? 

[129] 



SAVING AND INVESTING MONEY 

Many city charters limit bond issues for 
certain purposes to a certain rate of taxa- 
tion on the assessed valuation. Does this 
issue come within such limitations, if there 
are limitations? All bonds issued above 
such limitations would be questionable if 
not uncollectable. It is necessary that all 
legal requirements have been fulfilled, 
and this is best obtained through the in- 
vestigation and certificate of a competent 
attorney employed by a reputable bond 
house. 

If these legal requirements have been 
fully met and the issue is certified as satis- 
factory, you may purchase municipal 
bonds with all the confidence of surety that 
would attach to a state or government 
bond. 

Town, township, and county bonds do 
not differ in the least in principle from 
municipal bonds. Any consideration of 
one would apply equally well to the other. 
All such bonds, properly issued, fulfill per- 
fectly the first principle of a good invest- 
ment — safety. 

The rate of income varies. The bonds 
are issued at a certain rate of interest. 
They are placed on the market usually by 
banks, trust companies, and bond dealers 
bidding for the whole issue at a premium 
or at a discount. This premium or dis- 
count is shaped by the money market at 
the time and the general desirability of the 
issue in question. The prosperity of the 
130 ] 



PUBLIC UTILITY BONDS 

city, its probable growth, the known thrift 
and enterprise of its people all are factors 
for or against the bonds. 

The third principle, convertibility, varies 
much in municipal bonds. Convertibility 
varies more than either safety or income. 
The size and importance of the city are 
great factors. If the city is well known 
and growing, if its bonded debt is low com- 
pared with its valuation, if its people have 
the reputation for thrift and energy, if the 
labor conditions are peaceable, and if its 
industries are prosperous, its bonds may 
be in demand and are readily convertible. 
If the municipality is obscure and un- 
known, if its bonded debt is high, if its 
population is shiftless and shifting, if its 
labor is peevish and discontented, and its 
industries slow and fluctuating, its bonds 
may possess very little convertibility. In 
such municipalities there is little demand 
for their bonds outside the local investors. 
There is no public quotations and a nar- 
row field for their sale. 

There is one advantage enjoyed in in- 
active municipal bonds. They are more 
stable in price. There is less buying and 
selling and thus less fluctuation with the 
money market. These bonds, always safe, 
are owned by local investors who seldom 
care to "cash out." They may be carried 
on the books of banks or bonding houses 
as collateral during periods of depression 
without notable depreciation. At such 

[131 1 



SAVING AND INVESTING MONEY 

times active municipal bonds must be 
marked down to the prevailing market 
price. The municipal bonds that were in- 
active would be held at face value. 

The fact that there is little fluctuation 
in price of inactive municipal bonds serves 
to create a market for them. They fill the 
wants for saving banks and trust com- 
panies. The bank's surplus or long time 
trust funds may be invested in the inac- 
tive municipal bonds with assurance. 
Safety and stability with a fair yield are 
the qualities needed for such funds. In- 
crease in price is not essential. Prompt 
payment of interest and principal when 
due are the prime qualities. Interest is 
sure, even if the municipality must bor- 
row money to meet it. Principal is paid 
promptly either by direct levy, sinking 
fund, or rebonding the municipality. In- 
active municipal bonds, and real estate 
mortgages have often been the anchor 
which held savings banks and trust com- 
panies safely during short but severe 
financial storms. 

Municipal bonds do not, serve well the 
purpose of a business surplus. They are 
either easily convertible as in the case of 
active bonds or else have great stability 
of price as in inactive bonds. Both of these 
qualities are necessary for the investment 
of a business surplus but both qualities 
are not found in the same bonds. There 
may be an exception in short time active 
t 132 J 



PUBLIC UTILITY BONDS 

municipal bonds. The fact the bond has 
but a few years to run may give it stabili- 
ty of price and the fact that it is listed 
and active will give it proper convertibili- 
ty. But even then, it is very probable that 
a short term mortgage railroad, a railroad 
equipment bond, or a high grade industrial 
bond will meet the requirement better. 

For the investment of your private 
funds where safety, a fair rate of income, 
prompt payment of interest, with little 
trouble in looking after, are the things 
that appeal, municipal bonds, either active 
or inactive are worth your careful consid- 
eration. They have been a favorite field 
for investment the past decade for many 
careful investors. 

Public-utility bonds are growing favor- 
ites among investors. Millions of dollars 
are invested in such bonds annually. A 
public-utility company is an incorporation 
supplying some public need under a public 
franchise. This franchise gives them a 
definite power. Usually, but not always, it 
grants the corporation a monopoly over a 
certain industry for a period of years. It 
is at other times a perpetual charter last- 
ing indefinitely. Often it extends over a 
period of years with the privilege of re- 
newal under certain conditions, at the end 
of the charter period, or provision is made 
for turning it over to the municipality 
at its appraised value at the end of its 
chartered existence. 

[ 133 ] 



SAVING AND INVESTING MONEY 

The most common public-utility com- 
panies are those controlling street cars, 
electric light companies, water, and gas. 
To supply any of these necessary utilities 
to a modern city costs money. Large in- 
vestments of capital are necessary to meet 
the initial expense of establishing such 
utilities. It requires not only capital, but 
initiative, organizing ability, and enter- 
prise to carry out these great modern un- 
dertakings. 

To establish and finance these great 
enterprises, a company is organized for 
that specific purpose. This company then 
seeks a charter from the proper legisla- 
tive authority. This is usually from the 
city council elected by the people. The 
powers of the council over such matters are 
clearly defined either in the city charter 
or by the state legislature in a general 
law r defining these powers. Usually the 
question of granting a charter must be 
passed by a majority vote and approved 
by the mayor just the same as any other 
council proceeding. In nearly all cases it 
must then be submitted to the people for 
their approval at the polls. Numerous 
legal technicalities must be observed in 
giving election notice, the form of ballot, 
opening and closing of polls, count of vote, 
etc. If the election is close the legal tech- 
nicalities are apt to be scrutinized closely 
by the losing side. 

The franchise charter, legally secured, 

[ 134] 



PUBLIC UTILITY BONDS 

the company with its initial capital often 
raised by sale of stock among persons di- 
rectly interested in the project, begins the 
work of construction. Sometimes the city 
itself grants a large bonus upon the com- 
pletion of the work. This aids as a be- 
ginning for capitalizing the enterprise. 
When the work is complete and ready for 
business and an income established, bonds 
may be issued to meet any outstanding 
indebtedness. However, the initial cost is 
more frequently met by stock sales, and 
bond issues made for extensions or im- 
provements later. 

Public-utility bonds vary with the indi- 
vidual enterprise. The general principles 
are the same whether the corporation is 
to furnish water, gas, electricity, or street 
car service. Let us suppose a water com- 
pany organized to furnish water for a 
growing city of ten thousand, and test it 
by the principles underlying a good invest- 
ment. 

1. Safety of Principal and Interest. 
In discussing the safety of public-utility 
bonds there are three things to consider, 
the physical equipment, the financial back- 
ing, and the probable political influence 
that it must encounter. Each of these 
have a valuable part to play in the matter 
of safety. 

If you contemplate investing in public- 
utility bonds you will want to know the 
physical property. If you know this you 

[ 135 ] 



SAVING AND INVESTING MONEY 

may judge whether the bonded debt is se- 
cured by something of real market value in 
excess of the bond issue. What is the ex- 
tent and valuation of the company's real 
estate? This often includes land in and 
about the source of the water supply. 
This land may possess value other than 
the mere source of water supply. If the 
land value is greater than the total bond 
issue, the bonds are unquestionably good. 
Usually with water companies the real 
estate value is small in comparison with 
their bond issues. In this case, other val- 
ues must be taken into consideration. 

Machinery and equipment are then to 
be considered. These are often expensive. 
Are they new and up to date, or, are they 
already superceded by something better 
and more economical. The life of machin- 
ery is from ten to twenty years. At the 
end of that period, something newer and 
better is very apt to be on the market and 
the old machinery is ready for the scrap 
heap. For this reason liberal allowance 
must be made for depreciation of machin- 
ery that has been used for a number of 
years. Very often bonds are issued to 
equip and extend water service. If the 
company is free from indebtedness and 
has proved profitable with the old equip- 
ment which is to be replaced by something 
newer and better, the bonds should prove 
both safe and convertible. In this case 

[ 136 ] 



PUBLIC UTILITY BONDS 

the bonds should be sought by investors 
sufficient to make them a ready sale. 

What would be the cost at the present 
time of replacing the entire equipment 
with a new plant and machinery? If the 
plant could not be duplicated for the 
amount of the outstanding bond issue it 
indicates that the company enjoys a strong 
position and its bonds are all the more safe. 

It is not always easy to get a true valua- 
tion of the real estate and the cost of dup- 
lication of the plant and equipment. The 
most reliable estimates come from a com- 
petent and independent engineer having 
no interest whatever in the bond issue. 
Bond dealers handling large issues of pub- 
lic-utility bonds for their clients usually 
have the unbiased estimate of competent 
engineers upon the cost of duplication be- 
fore attempting to float the bonds. If 
the bonds are handled by responsible deal- 
ers with established reputation, you may 
rely upon their estimate with confidence. 
It is practically impossible for you to make 
an estimate for yourself. Unless your ex- 
perience has been unusual, your own es- 
timate after it is made would likely be 
less reliable than that of the bond dealer's 
engineer whose experience is broader. 

In addition to the real estate value and 
equipment cost backing the bond issue, the 
iranchise value is of great importance. In 
addition to the legal technicalities which 

[ 137 ] 



SAVING AND INVESTING MONEY 

are assumed to have been duly observed 
in the granting of the original franchise, 
there are other points to be taken into con- 
sideration. Is the franchise perpetual or 
is it granted for a definite period only? 
If for a specific period, how long has it 
to run yet? Is the franchise exclusive or 
partial ? If it is exclusive, so that no oth- 
er company or corporation can in any way 
enter the municipality or compete with it 
in any way, its bonds are much more se- 
cure. The franchise rights alone may be 
enough to make the bonds safe without 
any valuation whatever based upon real es- 
tate or equipment worth. 

If the franchise right is for a period of 
years only, it is imperative that the bonds 
fall due and become payable some years 
before the end of the franchise. Other- 
wise you would be taking great risk. The 
property would be of doubtful worth to the 
bondholders if they had to foreclose the 
mortgage at the end of the franchise 
period. 

Granted then, that the real estate and 
equipment value are satisfactory and that 
the franchise is perpetual or has a good 
period to run, and that it is exclusive 
enough that no competitor may enter the 
field, you still want to know the com- 
pany's financial condition and its earning 
capacity. Has the company made money 
in the past? What dividends have been 
paid? Has it met its former obligations 

[ 138 ] 



PUBLIC UTILITY BONDS 

promptly? Has it met these direct out of 
profits or has it resorted to refunding is- 
sues? What dividends is it now paying? 
What is its gross earnings? What is its 
net earnings ? Examine the earnings over 
a series of years. Are they increasing or 
decreasing ? What is its ratio of gross and 
net earnings, extending over a period of 
years? What is the rate of growth in 
population in the city during the past ten 
years? What is a conservative estimate 
of its growth the next twenty years? 
Does the company keep its property in 
good repair? Are these maintenance ex- 
penses taken out of the earnings before 
dividends are declared or is part of the 
money obtained by bond issue used for 
repairs and maintenance? All of these 
questions go into making up a worthwhile 
judgment of the safety of a bond issue. 

The net earnings, after making due al- 
lowance for depreciation in equipment, 
sinking fund deposits, operating expenses, 
necessary repairs and keeping everything 
in first class running condition should 
equal at least twice the interest on the 
outstanding bonds. This is none too liberal 
for the highest class of safety. Acci- 
dents, unexpected and impossible to esti- 
mate, may come. These may prove ex- 
pensive and unexpected losses may reduce 
the security of the bond issue. 

Then comes the final question, What 
is the political outlook? There has been 

[ 139] 



SAVING AND INVESTING MONEY 

much agitation the past two decades for 
municipal ownership of public-utilities. 
Many cities own part, if not all of their 
public-utilities. Time enough has not 
elapsed to prove beyond the shadow of a 
doubt whether this will be for better or for 
worse. The sentiment is growing in that 
direction. In many cases newly acquired 
municipal ownership has reduced the price 
to the community until it will be impossi- 
ble to maintain it without large public con- 
tributions to the upkeep. These same mu- 
nicipalities rush into print prematurely, 
telling in glowing headlines what savings 
they have made to the people of the city. 
After the end of one or two decades such 
things may be fairly estimated. Esti- 
mates before that time are apt to be big 
guesses and sometimes published by little 
guessers. 

Smaller cities after establishing munici- 
pal public-utilities have often been more 
than glad to dispose of them. The larger 
cities have thus far never disposed of their 
public-utilities after they have been ac- 
quired. When present charters expire, 
perhaps, many more cities will experiment 
with public ownership. In most cases, no 
doubt, it will prove successful. In rare 
cases only, and then when it is evident that 
crooked work has been done, will there 
be loss on bonds, when the municipality 
takes over the enterprise. Where bonds 
would be safe without municipal owner- 
[ 140] 






PUBLIC UTILITY BONDS 

ship, there is not apt to be loss by the 
franchise passing back to the city. 

Our State Commissions having charge 
of public-utilities, under whatever title 
they may have in the different states, are 
nearly always made up of men of honest 
intentions and good business judgment. 
The most radical men often become rea- 
sonably conservative when placed in execu- 
tive positions of importance. These com- 
missions setting valuations of public-utili- 
ties are apt to set them high enough to 
cover in full all outstanding legitimate 
bond issues. 

Political agitation is less likely to affect 
public-utility bonds than public-utility 
stock. The control of rates and the setting 
of service standards is apt to decrease divi- 
dends on stock but will have little effect 
on interest rates on bonds. However, a 
saner epoch seems dawning when legiti- 
mate dividends will be permitted. The 
time is coming when commissions will 
grant service rates sufficient to pay legiti- 
mate dividends upon honest stock. These 
same state commissions will approve bond 
issues only up to the safety limit. Hence 
bond issues approved by state commissions 
and limited to certain definite uses are apt 
to be safer than in states where bond is- 
sues are determined by the corporation 
independent of all state authority. 

It will be seen that the first element, 
safety, of public-utility bonds is somewhat 

[ 141 ] 



SAVING AND INVESTING MONEY 

complicated. The bonds of any public- 
utility, in a growing city, on a good finan- 
cial basis and paying fair legitimate divi- 
dends, are pretty apt to be a safe invest- 
ment. This is more apt to be true if the 
bond issue has been authorized and ap- 
proved by state officials. If the city is un- 
fortunately situated, if the population is 
as apt to decrease as to increase, or if the 
public-utility itself is one likely to be sup- 
planted by something better, the bonds 
may be questionable. A water company 
whose source was not well chosen and 
where new and more abundant sources 
might be obtained, may be required to 
abandon much valuable property which 
would become practically worthless. A 
gas company supplying gas in a small city 
in which gas was little used for fuel, might 
be seriously affected by new electric light 
company competing in light. However, 
should the gas company change its char- 
ter, entering the electric light field, is- 
suing bonds for enlarging its service, 
these bonds might be both safe and profita- 
ble. Its bonds issued for the purpose of 
extending its plant for furnishing elec- 
tricity might prove a safe investment, 
while bonds for a new independent elec- 
tric light company might be doubtful. 

2. Rate of Income. Public-utility bonds 

pay about the same rate of income as good 

industrial bonds. They are apt to pay 

slightly better than railroad or municipal 

[142] 



PUBLIC UTILITY BONDS 

bonds. The rate is good but there is little 
prospect of it being better in the near fu- 
ture. The wide spread political agitation 
for municipal ownership will tend to re- 
duce the income to the plane of municipal 
bonds. Even municipal ownership will 
not discard entirely public-utility bonds. 
The municipalities will often borrow 
money upon the bonds of the public-utility. 
These bonds will have added safety be- 
cause the city is behind them, but this will 
tend to lower the rate of income rather 
than increase it. 

3. Convertibility. This varies widely. 
Like municipal bonds, the public-utility 
bonds from great cities have wide sale, 
while the bonds from small or relatively 
unimportant cities must depend upon the 
local investors largely for their sales. The 
market being narrow, the sales are lim- 
ited. Unless the issue is large enough to 
interest bond dealers in making careful 
examination of the legal details at their 
own expense and certifying to you as their 
clients, there are apt to be questions upon 
which you do not feel safe. If you are in- 
vesting a business surplus or other funds 
which you are apt to need on short notice, 
public-utility bonds are not likely to be the 
best investment. They may be safe but 
they are slow convertibility. 

4. Prospect of Appreciation in Value. 
Public-utility bonds possess little proba- 
bility of increase in price. Slight varia- 

1143 1 



SAVING AND INVESTING MONEY 

tions may follow changes in the money 
market, but they are spasmodic. Occa- 
sionally an option is given allowing the 
bonds to be convertible into stock of the 
company. If the company is a big suc- 
cess the stock may be worth more than 
the bonds. But if the company is ever so 
successful the bonds, like real estate mort- 
gages, do not yield a higher rate. The suc- 
cess of the company may make them safer 
and easier sale, but it does not increase 
their value above par and stipulated in- 
terest. 

5. Stability of Market Price. Public- 
utility bonds are fairly stable in price. 
The fact that the organization usually 
possesses a monopoly of some modern ne- 
cessity makes their income regular. If 
bills are not paid promptly service is dis- 
continued. Hence the loss from bad debts 
is small. The rates are fixed and do not 
fluctuate greatly. Cost of labor and ma- 
terial are a gradual increase. They may 
affect dividends but they do not affect 
bonds except remotely. There is noth- 
ing like the fluctuation of earnings in a 
public-utility corporation there is in a rail- 
road during times of depression. Their 
stability of market price, like that of real 
estate mortgages, is due rather to the in- 
activity than to their intrinsic value. They 
are hard to liquidate in times of financial 
stress. 

In summing up then, public-utility 
[144] 



PUBLIC UTILITY BONDS 

bonds are worth consideration for private 
investment making sure that the corpora- 
tion back of them is on a paying basis, 
that there is a good margin between actu- 
al value and bonded debt, that franchises 
are satisfactory, and that the management 
is capable and upright. 



145 



RAILROAD MORTGAGES 

Railroad bonds, or railroad mortgage 
bonds as they are often called, are of two 
general classes. First, railroad mortgage 
bonds secured by mortgages upon the rail- 
road right of way or real estate. Second, 
railroad equipment bonds secured by the 
rolling stock of the railroad. These will 
be discussed separately. 

Railroad mortgage bonds run a certain 
length of time at a certain rate of inter- 
est. These tw r o elements, the length of 
time they run and the rate of interest 
they bear, are incidental conditions which 
must be considered in making railroad in- 
vestments in addition to the five princi- 
ples pointed out in Chapter II. These two 
incidental conditions are of great impor- 
tance. A five percent fifty year bond based 
on the same security as a four percent 
twenty year bond will often sell at a widely 
different price. Bond dealers in order to 
eliminate these incidental features classify 
bonds on the basis of their yield. Such 
bonds are spoken of and sold on this basis. 

If a bond sells above par its yield is less 
than its nominal rate. A six per cent bond 
pays six percent on its face or par value. 
If it sells at one hundred fifty, it will yield 

[ 146] 



RAILROAD MORTGAGES 

four percent on the investment. Take for 
example, a twenty year six per cent bond 
bought at one hundred fifty. At the end 
of twenty years you will have received 
twelve hundred dollars in interest and will 
then get the face or the bond of one thou- 
sand dollars. This will make two thou- 
sand two hundred dollars in all. Deduct 
the cost of fifteen hundred dollars and you 
will have seven hundred dollars as profit. 
This is an equivalent of thirty-five dollars 
per year or a rate of only two and one- 
third percent yield. 

If a bond is sold below par the yield is 
increased. If you buy a thousand dollar 
bond at fifty, which yields six percent on 
the par value, in twenty years you would 
receive twelve hundred dollars interest and 
at the end of the time you would get the 
face value, one thousand dollars. This 
would make a profit of seventeen hun- 
dred dollars on an investment of five hun- 
dred dollars for twenty years, an average 
of eighty-five dollars per year. This is 
equal to seventeen percent yield on an av- 
erage. 

These yields have been calculated on all 
bonds paying interest from two to seven 
percent and for any number of years up 
to one hundred. It is only necessary then 
to refer to the table to get the net returns 
upon any given bond held until maturity 
at a given rate at a given price. This net 
return is known as the basis and bonds 

[ 147 ] 



SAVING AND INVESTING MONEY 

are spoken of as selling upon a basis of 
three and a half, four and three-fourths, 
seven and six-tenths, etc. Sold on a yield- 
ing basis, the income does not refer to the 
coupon rate of interest. 

During the past decade and a half there 
has been much question of railroad bonds. 
Popular agitation and peanut politics have 
played their part. Over-capitalization, re- 
bates, and watered stock have given a 
fighting basis for the agitation. Invest- 
ment of foreign capital in many of our 
best paying railroads may have caused 
less sympathy from the public than if it 
had been American capital. Restrictive 
measures by the state, and our Inter-State 
Commerce Commission, bringing railroads 
under direct control and supervision of the 
government has made the people skepti- 
cal. Socialistic agitation for public own- 
ership of our railroads, telegraph and tele- 
phones has had much to do with the shak- 
ing of the confidence of conservative in- 
vestors in railroad mortgage bonds as long 
time investments. Even high officials in 
railroad circles in their efforts to prevent 
meddlesome and hurtful legislation against 
the railroads, have painted over-pessi- 
mistic views of the railroad situation which 
have reacted like a boomerang to their own 
cause a few years later in the bond mar- 
ket. 

The worst of the agitation against rail- 
roads seems to have passed. The political 

I 148] 



RAILROAD MORTGAGES 

howler has ceased some of his ravings 
against the railroads. A saner view is 
dawning. Much of the watered stock has 
been eliminated by reorganization and re- 
ceiverships. Confiscatory rates are no 
longer imposed. Railroad officials are 
studying economy of management without 
decreasing efficiency. The world war may 
result in our foreign owned railroad stock 
finding its way home. Our own capitalists 
may learn a lesson from the decade or two 
of popular persecution and take the public 
more into their confidence. The American 
people are just when they understand. 
Many railroad men have seen the wisdom 
of scattering their stock widely among 
our own people. This gives friends in 
every community in time of need. Rail- 
road Commissions in many states are be- 
coming convinced that there are conditions 
other than cheapness of mileage rates to 
be considered. Increase of both freight 
and passenger rates have been granted 
the past few years. The public have un- 
derstood and approved the advances. All 
these things presage a continuance of rail- 
road bonds as safe and sound long time 
investments for funds, both private and 
trust funds. 

Many of our railroads may be electri- 
fied. Changes now unforeseen will come, 
but as far as the wisest can see into the 
future, railroads will continue to be the 
great carriers of freight and passengers 

[ 149] 



SAVING AND INVESTING MONEY 

for a generation or more. So long as they 
do, they must have money and in turn must 
make money. They are gradually passing 
to government control, and should they 
pass to government ownership all legiti- 
mate bonds would be paid in full or be as- 
sumed by the general government. 

There is no great mystery about deter- 
mining the value of any specific railroad 
bonds. The safety of any "promise to 
pay" obligation depends upon the margin 
of security between the real value and the 
amount of the loan. The greater this mar- 
gin the safer the loan. The two things 
then to examine carefully to determine 
the safety of a railroad bond are the le- 
gality of the mortgage securing the loan, 
and the annual reports of the road showing 
in detail its financial condition. The ex- 
perienced business man or attorney can 
readily analyze these and pass upon their 
reliability with reasonable assurance. 
Among the things to be considered are : 

1. The rate of bond issue per mile. 
This is the easiest way to determine 
whether the loan is excessive or not. 
What relation does this issue of bonds per 
mile bear to the market value of the road ? 
The market value is determined by adding 
the market value of the stock per mile to 
the bonded indebtedness per mile. Bond 
issues vary from thirty thousand to eighty 
thousand dollars per mile. The actual cost 
of construction must be considered to- 
[ 150] 



RAILROAD MORTGAGES 

gether with the estimated cost of dupli- 
cating the road. Physical difficulties to 
be overcome, the character of the country 
as to production or non-production, the im- 
portance of the commercial centers it con- 
nects, etc., are potent factors. If the coun- 
try is level the construction costs will be 
less. Bonds are safer on a railroad pierc- 
ing a fertile, well cultivated valley or plain 
than an arid waste with no possible fu- 
ture development. A railroad which has 
no worthy terminus, that runs as far as 
it can and stops, is never profitable. If it 
connects two commercial centers, its bonds 
are safer though far more per mile than 
if it runs a certain number of miles and 
stops in some insignificant village or town. 

2. What is the amount of prior lien 
bonds per mile outstanding? This is im- 
portant. The higher the outstanding prior 
lien bonds per mile, the greater the risk 
on the subsequent issue. The last issue 
of bonds becomes a second mortgage. The 
first issue must be satisfied before any- 
thing is left for the second. 

3. What is the amount of junior lien 
bonds outstanding per mile? Junior lien 
bonds act in a reverse order of prior lien 
bonds. Junior lien bonds increase the mar- 
gin of security. It indicates that other 
people have confidence in the value of the 
railroad even after your bonds are made 
secure. Before they can realize anything 
on their junior bonds your senior bonds 

[ 151 ] 



SAVING AND INVESTING MONEY 

which precede theirs must be met. Should 
the road go into the hands of a receiver it 
is a matter of great importance. Should 
the holders of the junior lien bonds ask 
for a receivership, in order to protect 
themselves, they must bid in the road at 
a price to make your bonds secure before 
they can get any value for their own. 

These three things determine the safe- 
ty of the principal invested in railroad 
bonds. You can apply them to any road 
in whose bonds you are interested. There 
are three things that may affect the inter- 
est on bonds. 

1. The gross earnings per mile. How 
do the gross earnings compare with the 
gross earnings of other roads in the 
same field? Examine the gross re- 
ceipts for a series of years. Have 
they increased or decreased? Is there a 
good reason for this? You are especially 
interested in decreases or large fluctua- 
tions from year to year. If either is found, 
seek a legitimate reason for the same, else 
shun the bonds. What is the outlook for 
increase in business? This may come 
from securing a greater share from other 
competing lines. A safer better source is 
the growing increase of business in which 
the road is to get its due share. What is 
the probable increase in population in the 
section it serves? This is important as 
well as the proportion of increase in pas- 
senger and freight traffic. What is the 
( 152| 



RAILROAD MORTGAGES 

reputation of the management for integ- 
rity and business building ability? This 
is very important. The gross earnings of 
the railroads in the United States vary 
from three to forty thousand dollars per 
mile annually. The average is perhaps 
about ten thousand. 

2. What is the net income per mile? 
Net income is the gross earnings less the 
operating expenses including taxes. This 
is an important item. Is it increasing or 
decreasing year by year ? How does it com- 
pare with other roads operating in the 
same field? Is the road kept in good re- 
pair and up to date? One of the tricks 
of the trade is to let a road decline in its 
upkeep in order to show better income. 
Avoid bonds on a road that is not kept up 
to a high standard of physical condition. 
Usually operating expenses amount to from 
sixty to seventy-five percent of the gross 
earnings. If they are found to be less 
than sixty percent it is well to consider 
whether the physical condition is being 
neglected or not. It costs money to keep 
a railroad in good condition. If operating 
expenses are below sixty percent of gross 
receipts it is apt to indicate that the road 
is being neglected or else many minor im- 
provements are being paid out of increased 
capitalization. Either is a good cause for 
rejecting the bonds. 

3. What are the fixed charges per 
mile? These fixed charges are interest 

I 153 ] 



SAVING AND INVESTING MONEY 

on outstanding bonds, rent on terminals, 
and taxes unless these last are counted in 
the operating expenses. The real import- 
ance of the fixed charges rests with its re- 
lation to net income. If the net earnings 
of a railroad is not double its fixed charges 
it does not deserve to be classed in the 
very first rank as a bond investment. 

These principles will serve as a guide 
as to the safety and attractiveness of the 
bonds of any particular road. Special is- 
sues are often made as collateral trust, 
bridge, or terminal guarantee bonds. But 
each of these special issues may be tested 
and measured by the same general princi- 
ples of railroad bonds in general. 

It is estimated that railroad stock should 
earn ten percent of its market value. At 
this rate the stock of American railroads 
would be worth in themselves more than 
half the value of the roads of the country. 
This would leave half or more of margin 
to be secured by bonds which would com- 
pare favorably with real estate mortgages 
in a general way, where conservative loans 
are not extended above fifty percent of the 
market value. 

Returns on railroad bonds vary. The 
depression of the past few years, together 
with the legal restrictions regulating rail- 
roads, has caused returns to be less. They 
yield from three to eight percent, while 
they average perhaps between five and six 
percent. They have yielded better than 
[ 154] 



RAILROAD MORTGAGES 

government or municipal bonds. They 
have not yielded as much as good public- 
utility or industrial bonds. They have 
upon the whole paid more than bank stock 
and have been as profitable if not more 
profitable than railroad stock. These 
comparisons are based upon railroad bonds 
as a class. Certain roads have been hard 
run. These have been commented upon 
by the press out of all proportion to their 
real importance. As a whole, railroad 
mortgage bonds have proved safe and prof- 
itable. 

The second general division of railroad 
mortgages are railroad equipment bonds. 
These are issued by railroads to provide 
funds for rolling stock, such as the various 
kind of cars and locomotives. These is- 
sues have various names such as equip- 
ment bonds, equipment notes, car trust 
certificates, etc. They are a later devel- 
opment than the railroad mortgage bonds. 
For this reason they are not so well known 
by small investors though well and favor- 
ably known by bankers. 

This method of securing money for the 
development and equipment of railroads 
began in the early eighties. Without it 
many a profitable railroad might have 
found it hard to finance and equip its 
bare road with rolling stock to compete 
with its well established and money-mak- 
ing competitor in the field. 

Equipment bonds are of two kinds, 

[155] 



SAVING AND INVESTING MONEY 

those furnished on the conditional sale 
plan and those furnished on the lease plan. 

In the conditional sale plan, the road 
specifies its needs and the kind of equip- 
ment desired. Some trustee, usually a 
trust company, then contracts for the num- 
ber of cars and locomotives needed to be 
built by some railroad equipment company 
according to the plans and specifications 
of the road. The railroad pays from ten 
to thirty percent cash on this rolling stock 
and the balance is covered by equipment 
bonds. These bonds are a direct obligation 
or promise to pay, given by the railroad 
company. They are secured by a first 
mortgage upon the entire equipment of 
cars and locomotives purchased. The title 
to the equipment remains in the trustee's 
name for the purpose of protecting the 
bondholders. In this way it is impossible 
for the general mortgages of the railroad 
to reach or attach the rolling stock equip- 
ment until the equipment bonds are fully 
paid and the title to the rolling stock 
passes to the railroad. After the equip- 
ment bonds are paid in full the trustee as- 
signs the title to the railroad company 
which then and not until then becomes the 
owner in fee of the rolling stock. 

Under the contract with the trustee the 
railroad is obliged to keep the equipment 
fully insured, in complete repair, in good 
order at all times, and to replace promptly 

[ 156] 



RAILROAD MORTGAGES 

any equipment worn out, lost or destroyed. 
A violation of any of these provisions 
would make foreclosure possible at any 
time. 

Equipment bonds are usually issued in 
coupon form of five hundred or one thou- 
sand dollars each. They usually provide 
for registration and pay interest semi-an- 
nually. They are paid in annual or semi- 
annual installments, about one-tenth be- 
ing paid each year. They run for about 
ten years, the last installment being paid 
at that time. A ten year period is well 
within the railroad life service of such 
equipment as estimated upon the average 
of such rolling stock. 

Sometimes all the equipment bonds fall 
due and are payable on the same date. 
In this case a definite sinking fund is set 
apart to meet the maturing bonds. An- 
nual or semi-annual deposits are made to 
this sinking fund and all such money is 
kept sacredly for the one purpose of re- 
deeming the bonds when due. Whether 
a percentage of the borffls are redeemed at 
regular intervals or a sinking fund pro- 
vided for the whole bond issue at maturity, 
each payment adds to the value of the se- 
curity of the bonds. The last bond to be 
paid or the last installment of the sinking 
fund has still a lien upon the entire equip- 
ment purchase for which the bonds were 
given. Like building and loan stock, or 

f 157 ] 



SAVING AND INVESTING MONEY 

land contract purchase of property, each 
payment adds value to the remaining se- 
curity. 

The leasing equipment plan does not 
differ materially, so far as the bonds are 
concerned, from the conditional sale plan. 
In the leasing plan the equipment is pur- 
chased by some individual, association, 
corporation or equipment company. The 
equipment is then leased to the railroad 
at a figure which will provide ample funds 
for the interest and sinking funds to pay 
all obligations in full at the end of a speci- 
fied period of time, usually ten years. The 
lease contract is then assigned to a trust 
company. Certificates or bonds based upon 
this lease contract for surety are then sold 
or used as a basis for borrowing purposes. 
The lease runs until the last bond or cer- 
tificate is paid in full, after which the 
trustee assigns the title to the equipment 
to the railroad company as in the condi- 
tional sale plan. In some states the leasing 
plan has some advantages in that it is not 
taxed as is the conditional sale plan. 

It will be seen that equipment bonds 
differ from railroad mortgage bonds in 
two important particulars. First the 
property securing the bonds does not be- 
long in fee simple to the railroad com- 
pany. This property is the basis of the 
loan and can not be held for any former 
debts of the road. Second the property 
is movable. It may be taken from one lo- 
[ 158] 



RAILROAD MORTGAGES 

cality to another or used upon any rail- 
road anywhere. 

These two qualities peculiar to railroad 
equipment bonds give them a distinct ad- 
vantage over railroad mortgage bonds in 
case the railroad becomes bankrupt. The 
holders of mortgage bonds can only ask 
for a receiver for the railroad. If under 
the administration of a receivership and 
with honest conservative management the 
road can not earn interest charges, the 
mortgage bondholders must take the 
smaller interest rate or no interest at all 
else scale the bonds to a price at which 
the road can operate upon a paying basis. 

In the case of equipment bonds a fail- 
ure to pay interest or principal when due 
would result in a legal demand upon the 
trustee to sell the rolling stock or lease 
it to some other road. The fact that the 
trustee has the power to do this prevents 
him from having to exercise it. The roll- 
ing stock is the tools with which the road 
works. It is essential to the road's opera- 
tion. In case of receivership if the re- 
ceiver could not have charge of the rail- 
road equipment, he could never pay the 
stockholders anything. Hence the courts 
have ruled uniformly that the equipment 
is necessary to the road and that its princi- 
pal and interest obligations must be paid. 
These take priority of interest over first 
mortgage bonds, ranking as a preferred 
claim along with wages, material and op- 

I 159 1 



SAVING AND INVESTING MONEY 

erating expenses. The justice of such a 
ruling is apparent to both stock holders 
and bond holders of a railroad when they 
consider the worthlessness of an aban- 
doned railroad which would be worth 
only its real estate and right of 
way value. Even these rights often revert 
to the owners of the adjoining lands upon 
the abandonment of the road. 

Equipment bonds have so far proved 
themselves the safest of railroad obliga- 
tions. Many defaulting railroads have 
paid the equipment bonds and interest in 
full. Referring back to the principles un- 
derlying good investments as stated in 
Chapter II, railroad equipment bonds satis- 
fy the first condition of safety better than 
any other railroad investment. They also 
measure well on the other principles. 

The rate of income is better than mort- 
gage bonds. The income varies of course 
with the strength and the general credit 
of the railroad issuing them, and the 
margin of security between the total cost 
of the equipment and the amount of the 
bond issue. It is evident that if the com- 
pany pays twenty-five percent of the cost 
of the equipment, issuing bonds for the 
remaining seventy-five percent of the cost 
the margin of security is better than if it 
paid but ten percent of the cost of the 
equipment in cash. 

The net return upon equipment bonds 
[ 160] 



RAILROAD MORTGAGES 

is from one-half to one and a half percent 
better than mortgage bonds on the same 
road. This is due probably to the fact 
the general public knows less about the 
good features of equipment bonds than 
mortgage bonds. 

Convertibility of equipment bonds va- 
ries. They are usually issued in serial 
form, the time of payment ranging from 
six months to ten years. The short term 
bonds are usually easily convertible. 
Banks and trust companies consider them 
much in the same light as good merchant's 
paper secured by good collateral. Many 
banks prefer them to merchant's loans be- 
cause they are not so local in their circu- 
lation and in that degree are more con- 
vertible. The longer time bonds are less 
in demand. Insurance companies and 
trust funds having long time to run are 
the source of market. As the general pub- 
lic becomes more acquainted with the good 
points of equipment bonds, all the series 
whether long or short will grow in de- 
mand and become more easily convertible. 

Equipment bonds are more stable in 
price than mortgage bonds. The shorter 
term issues seldom vary much. The 
longer term ones will vary with the fluctua- 
tion of the money market. 

Equipment bonds vary little in value. 
Like other first mortgages if the principal 
is safe there can be little extra profit ob- 

[ 161 ] 



SAVING AND INVESTING MONEY 

tainable because when the face of the 
bond is paid as per contract, there is no 
further claim. 

Equipment bonds are especially adapta- 
ble to the investment of a business sur- 
plus. They combine perfect safety with 
good rate of income, fair convertibility 
and small fluctuation in value. These are 
the essentials for the investment of a 
business surplus, the short time bond be- 
ing preferable. For trust funds where 
safety, rate, and steady market value are 
the essential qualities the longer term 
equipment bonds are very adaptable. Each 
payment of the shorter term bonds or 
each contribution to the redeeming sink- 
ing fund adds value to the longer term 
bond. 

All in all the railroad equipment bond 
should be known better among small in- 
vestors. 



162 



LIFE INSURANCE 

Life insurance is considered more as a 
protection than as an investment. It may 
be considered in either light. Modern life 
insurance has become almost a science. 
Tables of mortality have been worked out 
to such completeness and assurance that 
no business has a firmer basis on which to 
build than life insurance companies have 
to compute their risks. Of the great finan- 
cial institutions of the past century, few, 
if any, have been of greater service to 
mankind than the great life insurance 
companies of the world. They have en- 
couraged thrift. They have provided for 
widows and orphans. They have financed 
the biggest and best industries of the 
world. They have encouraged health in 
many ways. They have paid to many a 
man a handsome sum for his declining 
years. These men unaided would have let 
their entire earnings slip through their 
fingers without realizing it. 

Many a man has recovered from dan- 
gerous sickness because he was freed from 
worry about the future of his wife and 
family. Many a dying man has been so- 
laced in his last hours quite as much by 
the knowledge that all would be well finan- 

[163] 



SAVING AND INVESTING MONEY 

cially with his family after he was gone 
as by the assurance of the priest or 
preacher that all was well with him be- 
yond. Children have been educated, homes 
freed from debt, widows made self-sup- 
porting, parents and dependents provided 
for, until life insurance companies out of 
purely business motives have shamed our 
churches and benevolent orders when a 
comparison of results is made. 

It would seem that in the present day 
any argument in favor of life insurance 
would be superfluous to any intelligent 
man physically able to obtain it. The 
man who can not see the benefit of it, 
and understand how a life insurance com- 
pany can pay great losses legitimately, and 
share dividends, and distribute millions of 
dollars in paidup policies must be dull in- 
deed. The principles underlying insurance 
are so well established and demonstrated 
so fully, that there is little doubt of the 
financial standing and prosperity of many 
of the old line companies. It surpasses 
understanding, how a man of good business 
judgment, not wealthy enough to leave 
his family independently well to do, and 
healthy enough to obtain it, can afford to 
go without life insurance enough to pay 
all indebtedness and leave a fund sufficient 
to aid his family in maintaining their usual 
standard of living should he die. Yet, 
there are such men, and upon most busi- 
ness affairs their judgment is good. 

[164] 



LIFE INSURANCE 

The usual argument of such a man is 
that he can invest his savings so as to 
yield a larger rate of income. This is true 
perhaps if he lives, but, suppose he dies 
before his farm or his home is paid for. 
Whose earnings then will release the mort- 
gage or finish paying the building and 
loan stock ? No man whose wife and fami- 
ly is dependent upon his earnings for sup- 
port is morally justified in going into debt 
unless he carries at least enough life in- 
surance to cancel the indebtedness should 
he die before the debt is paid. 

These same men will claim they can not 
afford life insurance. They can not afford 
to do without it. They carry fire insur- 
ance on their home and that is money well 
spent. Fire may never come. Death is 
certain. Death, unexpected death to a 
healthy man, is just as liable to come any 
time to him as fire to his home. 

Life insurance is an excellent pro- 
moter of thrift. It encourages saving for 
a definite purpose. The man who lets his 
policies in a good company lapse, without 
regret, is shiftless. He can afford to sac- 
rifice other investments instead. The 
whole family are interested in keeping up 
the payments and should be glad to econo- 
mize in order to do so. The poorest man 
can afford the outlay for insurance if he 
begins early in life. It is the poor man's 
only way to provide for his family should 
he be taken from them. To meet the pay- 

[ 165 ] 



SAVING AND INVESTING MONEY 

ments promptly is a spur to thrift. The 
money is saved nine times out of ten where 
it would be spent otherwise without any 
hope of profit or return. The habit of 
regular saving is the thing that counts. 
Saving to pay the premium on a policy in 
a good old line company is a worthy mo- 
tive. It gives a feeling of security, and 
puts backbone into a man in a way that is 
unexcelled by any other investment he can 
make. 

There are many good reliable companies. 
It would be unjust to mention them in a 
book like this. It would be impossible to 
mention them all and perhaps those not 
mentioned would be quite as good as the 
others named. The rates are much the 
same for the same age and risk. Choose a 
company that is safe and conservative. 
You want a policy in a company that will 
have the money, one hundred cents to the 
dollar, for the full amount of your insur- 
ance the day your policy matures or the 
moment your family files proof of your 
death. You can not afford to take a policy 
in a doubtful company because the rate is 
a dollar or two cheaper per year. Safety 
first is your motto in life insurance as in 
any other business deal. 

Other things being equal you should pre- 
fer a policy in a company with an estab- 
lished record for prompt payment and 
square dealing. You want the company to 
[ 166] 



LIFE INSURANCE 

make money. You want it to have an 
ample reserve and a surplus rather than a 
cheap rate and a deficit when your claim 
becomes due. A little extravagance in the 
management is of less importance to you 
than that they should be unable to pay 
your policy promptly when due. 

You want in a conservative company. 
This is often the best guarantee that they 
will meet your claims. The stricter they 
are in accepting doubtful risks the surer 
you are that they will meet your policy 
contract if you pass their examination 
and are admitted. The more careful they 
are in making loans, the safer will your 
money be with them. In guarding them- 
selves against loss they guard your money 
from loss. 

There are many new life insurance com- 
panies of recent origin. Some of them are 
safe and conservative. Many of them be- 
long to the wild cat speculative class. 
Most states now regulate their organiza- 
tion. Some of the states did not begin the 
regulation soon enough and many a policy 
holder was stung by a worthless company. 
This has done much to bring life insurance 
into disrepute. It was the fashion a de- 
cade or two ago for the mushroom variety 
of new companies to write all sorts of 
speculative contracts with little or no 
financial responsibility to back the con- 
tract. 

[ 167 ] 



SAVING AND INVESTING MONEY 

The "prominent people" dope, "man of 
influence" racket, and other such schemes 
were worked upon the easily gullible to get 
him to take a policy in the new company 
"just for the influence of his name." 
Usually a heavy payment for the first 
few years was required. A verbal prom- 
ise was given that after eight or ten years, 
enormous dividends would be returned to 
the policy holders. These promised divi- 
dends were beyond all reason. Common 
sense would have rated them as impossi- 
ble in a legitimate business. Thousands of 
men bit, as bite they will, and lost. Bar- 
num was not all wrong when he declared 
the people liked to be humbugged. The 
worst of such speculative adventures is 
now past. The restrictive measures passed 
by the different states has made it harder 
to start new companies. There still exist, 
however, many of the newer companies of 
good financial strength and a few of doubt- 
ful character. 

A few years ago when wild cat compa- 
nies were flourishing, it was the fashion 
for professional organizers to float life in- 
surance stock among investors upon big 
commissions. The company had no real 
standing and no business ability behind 
it. It was a stock selling scheme by pro- 
fessional salesmen working upon the popu- 
lar fancy that the earnings of life insur- 
ance companies were fabulous. This popu- 

[ 168 ] 



LIFE INSURANCE 

lar fancy was based upon the value of 
stock in some of the long established com- 
panies, backed by decades of business abili- 
ty, hard work and careful financiering. 
Using the argument of great profits as 
shown by the market value of some of the 
stock in these old companies, without men- 
tioning the ability and judgment shown in 
their management, many new companies 
were organized. Their stock selling scheme 
worked and many an honest dollar was 
filched from the small investor, the busi- 
ness man, and the man on salary, each 
hoping vainly to get rich in a few years 
off of an investment of a few hundred dol- 
lars. 

Some of these speculative companies 
were formed to take advantage of the 
popular cry against extravagance in the 
management of some of the wealthier com- 
panies. After a few years they sold the 
risks and the assets at a profit to some 
older or better organized company. This 
selling out scheme had been part of the 
plan of the company from its very concep- 
tion in the minds of the organizers. The 
profits went often to pay these same pro- 
fessional organizers for stock originally 
voted them as bonuses for their work in 
organizing. 

These games so hurtful to legitimate 
life insurance are now largely a thing of 
the past. Restrictive laws, better super- 

[ 169 



SAVING AND INVESTING MONEY 

vision, and more thinking on the part of 
the small investor has made it difficult for 
the professional organizing salesman to 
play his part. The stronger, safer, legiti- 
mately worthy companies have come 
through the period of doubt and criticism 
holding the confidence of the public and 
their thoughtful policy holders stronger 
than ever before. 

There are some good fraternal insurance 
orders, but their policies do not rank with 
old line companies as a safe investment. 
When a fraternal order is new its members 
are young. Assessments are begun at a 
rate that seems ample at the time to pay 
all death claims. They, as a rule, do not 
deal in endowment insurance. Of the 
thousand healthy young members who first 
take out policies the death rate for the 
next twenty years will not be heavy. But 
the members grow old. The ranks of the 
order are not kept filled with vigorous 
young manhood sufficient to pay the death 
claims without raising the assessment. No 
adequate reserve fund has been estab- 
lished. Perhaps the members of the or- 
ganization themselves would have voted 
against creating such a fund, thinking it a 
useless piling up of money and fearing 
that its use would have a corrupting in- 
fluence on the organization itself. 

After twenty-five or thirty years the 
death claim assessment must be raised to 
practically a prohibitive figure. Then old 
[170] 



LIFE INSURANCE 

members, far past their prime, begin to 
default in payment and to drop out. This 
still further increases the assessments on 
those who remain. The worst comes at 
last and many are turned out in their old 
age, losing all they have paid out and 
with little or no hope of the family realiz- 
ing upon their policies at their death. 
The only way for a fraternal order to make 
insurance safe is to lay by an ample re- 
serve fund and then keep up the new 
vigorous membership of the insurance di- 
vision of the order. When they do this 
their rates are apt to approximate those 
of the reliable old line companies. If their 
rates are the same, there is little excuse 
for the fraternal insurance order. The 
one big argument in favor of the fraternal 
insurance has been its cheapness. Noth- 
ing is cheap that is not safe. 

The real pity of a defunct life insurance 
company or a fraternal insurance order 
comes from the fact that many of those 
who carry insurance in them for years be- 
come of an age that rates are higher in 
the reliable companies or else they are 
physically unfit to obtain a policy in a good 
conservative company. 

For life insurance, nothing will equal a 
strong, careful, conservative old line com- 
pany backed by experience and business 
ability, with ample provisions for matur- 
ing policies. Cheap insurance that is un- 
safe, or that is questionable, is dear at any 

[ 171 ] 



SAVING AND INVESTING MONEY 

price. It is as poor business judgment to 
invest in it, as it is to buy mining stock 
because the professional salesman assures 
you that in five or ten years it will be pay- 
ing you twenty-five to fifty per cent divi- 
dends. You are sure to lose your invest- 
ment and get no returns. 

The policies offered by the reliable old 
line companies are of many kinds. Each 
has its good feature. It would be useless 
to go into detail with many of them, ex- 
cept in a very general way. There are a few 
points worth careful consideration by 
every one considering the matter of taking 
life insurance. 

1. Take out life insurance early. 
Young men make the excuse that they do 
not need insurance as they have no one de- 
pending upon them. The chances are 
many to one they will have later. Rates 
are less for the man of twenty-five than 
at thirty-five. Health may become impaired 
at any time which would make insurance 
impossible in a good company. At no time 
can a thrifty man save easier than when 
he is young. The very habit of saving to 
meet a regularly recurring investment is 
in itself an invaluable asset. It is the best 
pledge possible that you will prove able to 
provide and care for a family later. If you 
are unable to support yourself and save 
enough to pay a premium on a good sized 
life insurance policy before you are mar- 
[ 172 ] 



LIFE INSURANCE 

ried, you have very little to offer in the 
way of support to the girl you ask to be- 
come your wife. 

2. Your actual earnings, aside from 
your returns on investments, are apt to 
decrease after you reach fifty. It is well 
then for you to consider policies that will 
be fully paid up by the time you are fifty 
or soon after that age. A Twenty Year 
Endowment policy, a Twenty Payment 
Life Policy, or a Ten Payment Twenty 
Year Endowment policy, are each worth 
your careful consideration. Taken out 
before you are thirty, you will be done 
paying premiums before you are fifty. If 
it is an endowment policy the returns will 
come back to you by the time you are 
fifty. If you are thrifty and have had no 
unusual bad luck you should have accumu- 
lated enough that you will not have to live 
by the clock unless you desire to do so. 
The return of a few thousand dollars of 
insurance comes to you for investment at 
a time when your experience should en- 
able you to invest it wisely. If it is a life 
policy it is paid up in full. You may se- 
cure small dividends from time to time 
and the policy is payable to your bene- 
ficiary or to your estate upon your death. 
It will come at an opportune time to de- 
fray any claim or to pay off any encum- 
brance on your estate. If your earnings 
decrease after you pass the fifty mark, 

[173 ] 



SAVING AND INVESTING MONEY 

you have no further payments to make 
on your policies. The habit of saving to 
meet the payments in the past will make it 
easy for you to save now for other things. 
3. Several small policies are preferable 
to one large one. Five one thousand dol- 
lar policies are better for a man of aver- 
age means than one five thousand dollar 
policy. The one thousand dollar policy is 
the unit of insurance in nearly all com- 
panies. Five policies for one thousand dol- 
lars each will cost you no more than one 
policy for five thousand dollars. Should 
financial reverses come, as they sometimes 
do to the best of us, you may cash out one 
policy without impairing in any way any 
of the others. This cash may tide you 
over some serious financial stress and 
carry your remaining policies to better 
times. If you had but one large policy, 
you might be compelled to drop all your 
insurance and cash out to meet a period of 
financial reverses. Again, if you have a 
number of policies instead of one large one, 
and find your life insurance burden too 
great, you may take a "paid up" policy for 
one or more of them, relieving you of 
further premium, without detriment to the 
others. This same paid up policy is just 
as safe as any policy except it is less. You 
could not do this if you had but one large 
policy. You would then be compelled to 
drop all or none. 
[174 1 



LIFE INSURANCE 

4. It is well to distribute your policies 
among several of the good strong old line 
companies instead of risking all in one. 
The rates will not vary much. Dividends 
and returns may vary some. You will be 
interested in comparing dividends and in- 
terest accumulations in the different com- 
panies. In insurance as in other things it 
is best not to risk all your eggs in one 
basket. 

5. It is well to have some policies paid 
to certain beneficiaries while others are 
payable to your estate. Some states re- 
strict the borrowing or cashing out of 
policies made in favor of a wife or other 
persons without the written consent of the 
beneficiary. If the policy is made payable 
to your estate no such consent is re- 
quired. It is well also to retain the right 
of changing beneficiaries upon written re- 
quest to the company. Ten to twenty 
years may bring many changes. You 
should at least consider this point carefully 
when taking out a policy before waiving 
such right. 

6. Let it be a grave necessity before 
you borrow money on your policy. It is poor 
business and shows lack of thrift and weak 
financial ability to borrow on your life in- 
surance for a flimsy excuse. An invest- 
ment should be such that the money is be- 
yond your passing whim but ready for a 
real need. Your life insurance policy is 

[ 175 ] 



SAVING AND INVESTING MONEY 

just that kind of investment. You should 
strive against borrowing upon it, for 
every passing whim. It should be held 
sacred for a real necessity. Men of im- 
pulse and poor judgment often keep bor- 
rowed up to near the limit of their poli- 
cies. This in a sense is living off your 
wife and children instead of supporting 
them. Your insurance policy is primarily 
for the protection of your family. Every 
dollar you borrow upon it lessens the re- 
turn to them should you be called from 
them. 

7. Carry life insurance. Carry in old 
line companies. Begin early. Carry all 
you can afford but do not over-burden 
yourself with it. Life insurance is to be 
considered more in the form of a protec- 
tion than an investment. You should 
carry enough to pay off all debts should 
you die, to pay doctors bills and funeral 
expenses and leave a little margin for 
emergencies. Like other investments there 
is a limit to it. One thousand may be 
ample for one man, five thousand for an- 
other, a hundred thousand for another. 
The amount carried depends upon your 
earning capacity and the needs of those 
left behind at your death. 

8. Some excellent companies now write 
a joint policy based upon the life of both 
the husband and wife if both are desira- 
ble risks. The policy is payable to the 
survivor at the time the other dies wheth- 

1176] 



LIFE INSURANCE 

er it be husband or wife. This policy has 
commendable features and is worth think- 
ing over. It being a joint policy both 
husband and wife are interested in it 
equally. 

9. Good policies are also written which 
guarantee an annuity to children until of 
age or to the wife during her life or widow- 
hood. The annuity policy is worth careful 
study, and especially as it relieves the 
wife of the care and investment of the 
money. She draws her annuity regularly 
and has nothing to do with the principal. 

10. The agent of any life insurance 
company will be glad to explain the dif- 
ferent policies written by his company to 
any person contemplating insurance. The 
only caution is to select a good company 
before asking for an explanation. Other- 
wise, unless you are pretty well informed 
upon life insurance companies, you may 
be roped into a worthless or at least a 
questionable company. Insist that he 
make his terms clear. If he showers too 
many big words or new terms on you, in- 
sist on a clear explanation of the three 
policies mentioned in this chapter. When 
he has made these clear to you, you may 
readily note the other policies he may have 
to sell. Study the conditions of all poli- 
cies for yourself until they are clear to 
you. Insist that the agent explain in de- 
tail any points you do not understand. 
Remember that no agent has the authori- 

[ 177 ] 



SAVING AND INVESTING MONEY 

ty to modify any policy in any way. No 
change in a policy is valid until written 
into the policy before being signed by the 
officers of the company. No verbal state- 
ment of the agent is binding on the com- 
pany. All the conditions of the policy are 
stated in the policy itself. The agent may 
explain these conditions to you and will 
be glad to do so, but the conditions them- 
selves are the condition of the contract 
and not his verbal explanation of them. 

11. Life insurance companies can not 
create wealth for their policy holders out 
of nothing. By great accumulations of 
capital, they have unusual facilities for in- 
vestment. They can compound interest 
promptly and at the highest possible rate 
consistent with safety. They are able to 
employ men of the ripest and broadest 
experience as experts. They are in touch 
with all the great industrial movements 
of the world. Their outlook is far better 
and broader than a small investor can 
have. Even then you should look with 
suspicion on the company that promises 
you fabulous dividends or profits on your 
policy in the near future. This was the 
bait that caught so many men and roped 
them into the wild cat companies of a 
few years ago. 

In this age of life insurance at reason- 
able cost, it would seem that the man 
able to obtain it and who fails to do so, 
sins against his family unless he has am- 
[178] 



LIFE INSURANCE 

pie means to support them in the standard 
to which they are accustomed. The best 
business men of the country are heavily 
insured. They know its value as protec- 
tion. They understand its principles and 
have the highest confidence in the finan- 
cial efficiency of the standard old line com- 
panies. The short-sighted, or those who 
can not obtain it, are the only ones not 
carrying one or more good policies in some 
reliable company. 



179 



CAUTIONS 

There are exceptions to all rules. No 
one can tell you with absolute certainty 
just what forms of investment to avoid 
in all cases. The lucky man who took a 
dangerous risk and won out in it, is laud- 
ed to the sky by those who own or have 
similar stock to sell. The nine hundred 
ninety-nine out of the thousand who took 
the same kind of risk and lost out are 
never mentioned. 

The small investor can least afford to 
take big risks and it is the small investor 
who makes up the big body of suckers that 
bite at all sorts of speculative bait. 
"Catch a sucker and bump his head," is 
slang quite common among speculative 
salesmen. They understand the meaning. 
They fish with that kind of bait. They 
catch the suckers and they bump their 
heads. That is their game. 

The small investor with his few hun- 
dred dollars of savings can not afford to 
bite at speculative schemes where the 
great majority must lose. The oily 
tongued professional promoter, floating 
doubtful stock on big selling commissions, 
seeks too often the man or woman of small 
means and limited experience in financial 

[ 180] 



CAUTIONS 

matters as the easiest prey. They tell of 
fortunes made in a few years by ground- 
floor investments and rapid rise in values. 
Easy manners, ready wit, personal mag- 
netism, and promise of fabulous returns 
enable the slick-tongued salesman to hide 
the big flaws in the game. Personal charm 
and flattery take the place of real reason- 
ing. He gets the confidence of the inex- 
perienced, works upon their credulity and 
the hard earned cash of the honest work- 
man and the widow is worse than wasted. 
The greatest obstacle to thrift among the 
masses is the millions of dollars lost each 
decade by these same persons in specula- 
tive investments that prove worthless. 
"What's the use," they say, "to save and 
save for some guy to cheat you out of all 
of it in one bunch." This homely phrase 
is sound argument to many and discour- 
ages saving in whole groups of persons 
who might and could save. To keep a few 
who read these pages from some of these 
worthless investments is the purpose of 
the following cautions. 

1. Do .not invest your saving hastily. 
The speculative salesman is always in a 
hurry. This is part of his game. This is 
the last chance, he tells you, to get in on 
the ground floor. Only a limited amount 
of stock remains unsold. To hesitate is 
to lose. Tomorrow will be too late. These 
are the salesman's plea. He would have 
you sign up today, now, immediately. It 

[ 181 ] 



SAVING AND INVESTING MONEY 

is a part of good salesmanship to close the 
deal quickly. He wants to hypnotize you 
into thinking that this is the first, last, 
and greatest chance to fortune. He wants 
you to think his offer is opportunity knock- 
ing at the door and unless you open, it 
will never knock again. Very often it is 
the salesman's last opportunity to close a 
deal with you. If you take time to think 
it over you will see that it is only a gamble 
and with scarcely a gambler's chance to 
win. 

As a rule it is better to risk losing the 
opportunity of buying later than to buy 
now and lose your investment later. The 
financial investment that will not bear 
sleeping upon or thinking over for a day 
without losing interest in it is apt to be 
shaky. So many men invest their savings 
upon the passing impulse. Like the child 
with its new found nickel it makes haste 
to spend it for the first gaudy toy that 
comes in sight. 

Ask your banker's opinion of the propo- 
sition. The salesman of questionable in- 
vestment does not want you to talk to 
your banker. He would have you believe 
the banker will discourage your investment 
in order to filch it for his own funds. He 
depends upon your credulity in this to help 
him make the sale. He tells you that they 
do not want the bankers to invest in the 
stock as they prefer to scatter it among 
the masses. If bankers had the opportuni- 
ty ] 



CAUTIONS 

ty they would gobble the whole issue and 
monopolize the profits, he tells you. Thou- 
sands of small investors would save their 
money who now lose it, if they would talk 
over the deal with their banker or some 
experienced business man before signing 
up. Where one business man or banker 
would cheat the small investor out of the 
opportunity of making the investment, 
they would save ninety-nine other worth- 
less investments. 

2. Beware of the stock investments 
that promise to let you in on the ground 
floor. Your money is too apt to sink un- 
der the floor until you never hear from it 
again. This plea of getting in on the 
ground floor is often made by your friends. 
Your minister, some distant relative, or 
other friend gives you a tip. They tell 
you that it is the chance of a lifetime but 
they do not let you suspect that their in- 
terest in you is colored by the hope of a 
fat commission to them, provided they can 
land you for a few shares. They tell you 
practically every share is sold. They 
kept a few for one of their particular 
friends. This friend has had sickness or 
other misfortune and is not at present able 
to take the shares. As a special favor, 
you may have it at less than par if you 
act quickly. They are not sure but the 
stock is now over sold but they will try 
to get you a few shares if you will sign up 
and pay a slight payment now, the balance 

183 1 



SAVING AND INVESTING MONEY 

when the stock is delivered. If all the 
stock is gone before they can reach head- 
quarters they will see that your payments 
are refunded. It is a great opportunity 
and they are anxious that you take ad- 
vantage of it. A few hundred dollars in- 
vested now will make you independent in 
ten years. They glibly quote you figures 
from world famous organizations where 
each share of the first stock grew to be 
worth thousands of dollars and at the 
same time yielded annually golden divi- 
dends while the original stock was going 
up by leaps and bounds. The very few 
who get in on the ground floor of this 
company will reap returns above anything 
ever known before, they would have you 
believe. 

There is one thing they are not apt to 
tell you, and that is that they themselves 
are promised a bonus of from ten to fifty 
percent of all the money you pay in as a 
commission for landing you. The skilled 
promoter is about the only one who will 
ever get a cent of profit out of the whole 
enterprise. 

3. Beware of the enterprise that 
promises special inducements to those who 
subscribe early. The first few prominent 
persons in each community — you are one 
of them in your community — are to have 
special discounts and extra dividends. They 
can w r ell afford to do this for the prestige 
and influence of your name. You may re- 
[ 184] 



CAUTIONS 

scind your order for the stock later should 
you change your mind, but they want your 
subscription signature today for fifty 
shares. It will help them to land Smith 
and Jones who regard you as so safe and 
conservative and always follow your lead. 
When you hesitate you are shown the 
names of a select list of prominent per- 
sons who have already signed for from 
fifty to five hundred shares — all with the 
privilege of canceling the order, perhaps. 
If it is not convenient to pay all today you 
may pay part and the balance in six, nine 
or twelve months. Many a man and his 
money have parted under the implied flat- 
tery of the prominent citizen's influence 
plea. 

4. Mining stock is a dangerous invest- 
ment. Some one has defined a mine as a 
"hole in the ground into which fools dump 
their money." There is truth in the defi- 
nition. Thousands of men dump annually 
badly needed dollars into worthless mining 
projects. Rich ore is found in small pock- 
ets. The best mines may at any fime be 
worked out. Mining itself is expensive. 
Separating the ore from the rock is a cost- 
ly process. Transportation is often pro- 
hibitive. Mining sharks make more money 
and make it easier in extracting gold from 
gullible suckers than most men ever make 
from the products of the mine. A fool and 
his money are soon parted when the min- 
ing bee begins to buzz in his bonnet. Once 

[ 185 ] 



SAVING AND INVESTING MONEY 

in a while some one hits it rich in mining. 
His name and fame is used for bait to catch 
a new crop of suckers. 

Many men selling worthless mining 
stock believe in the mine they represent. 
They may have put every dollar they can 
raise into the enterprise. They may have 
looked the ground over personally. Sharks 
may have salted the mine a day or two be- 
fore their visit in order to catch them. 
They see the ore taken from the ground. 
They feel and handle the pieces and are as- 
sured that the dirt tests excellent results. 
All that is needed is money to install ma- 
chinery and develop the mine and in a 
year magnificent dividends can be paid. 
They hasten back home to tell their 
friends. They believe absolutely in the 
value of the stock. With this faith in the 
mining proposition they sell stock on a 
good paying commission basis. Money 
comes easy. They believe themselves on 
the road to wealth and dress and spend 
accordingly until a year or two later the 
real truth dawns upon them that they 
have been duped. 

Salesmen of mining stock have reaped 
a harvest the past two decades. Many of 
them were honest in thinking they were 
doing a legitimate business and giving 
their friends opportunities of wealth by 
placing this stock. Others knew they were 
fishing for suckers and fished with all the 
more zeal. Let us hope the next decade, 
[ 186] 



CAUTIONS 

with more stringent blue sky laws, and 
more rigid enforcement of the postal laws, 
may eliminate much of this and save to the 
honest small investor this stream of worth- 
less investments for something better. 

There are many men making money in 
the mining business. Their judgment of 
a mine is keen and reliable. When a good 
proposition is presented they usually snap 
it up before it is offered to the public in a 
cut-rate popular subscription scheme. The 
mining proposition that must be sold to 
the general public at a few cents a share 
by glowing headline advertisements or 
that is sold through professional promot- 
ers on high commission is stock to steer 
clear of. 

5. Oil stock is as speculative as mining 
stock. The chief difference in favor of the 
oil stock is that oil fields are more uniform 
in production over a given area. The land 
itself is apt to be worth more over oil 
fields than over mining regions. It is more 
productive and more accessible. This may 
give it a real estate value above mining 
land. More men have sunk money in oil 
wells than ever made money from their 
product. A good oil field like a good mining 
proposition does not have to resort to 
scream-head advertising to sell stock at 
from five to fifty cents per share. If the 
proposition is good, capital is easily 
found. So called popular subscriptions for 
stock are usually fathered by those who 

187 ] 



SAVING AND INVESTING MONEY 

expect to profit by high salaries while 
the boom is going or the loot they may 
secure when the enterprises collapses. 
Postoffice authorities are kept busy run- 
ning down one fraudulent oil or mining 
scheme after another to protect the gulli- 
ble public from its own credulity. 

There are many valuable oil and mining 
stocks that are listed and sold on the curb, 
but they are not the mush-room popular 
subscription, flaming advertisement kind. 
These stocks are issued on established oil 
wells, or producing mines, with expensive 
machinery installed and a daily product of 
telling dimensions. They exist in fact and 
not simply on paper and in the fertile 
imagination of professional promoters 
only. 

6. Land developing schemes, such as 
irrigation schemes, swamp draining 
schemes, sub-tropic fruit planting enter- 
prises, and a whole troupe of kindred 
speculations are dangerous. They are un- 
worthy the name of investment. They are 
speculative gambles. Rare indeed does 
one pay a legitimate dividend. The funds 
of widows and orphans and the hard 
earned cash needed to pay for the family 
home have been sunk times galore in such 
enterprises. Easily gullible ministers, 
doctors, teachers and other salaried per- 
sons are fruitful fields for sale of such 
stock. Bogus dividends are sometimes paid 
these same persons to salt them more se- 

[ 188 ] 



CAUTIONS 

curely. They in turn, enthusiastic over 
the supposed big melon crop just ripening 
in the near future as they think, scoop in 
the savings of their friends for new stock. 
All lose together, but the strangest of all 
the facts is, that those persons once gulled 
are the quickest to bite a second time on 
the same scheme under a different name. 
Such speculative enterprises are often 
doomed to failure from several reasons. 
The project itself may be impossible, 
hatched in a unpractical, theoretic, imagi- 
native mind, a wild dream befitting the 
novelist's poetic fancy. The enterprise is 
usually located far away. Distance lends 
enchantment to many a speculative mind. 
Good things to them are always thousands 
of miles away. Climate and labor condi- 
tions may be so entirely different that 
both are problematical. If the investor 
were willing to forsake all, become a pio- 
neer and live for twenty years or more, 
working like the early pioneers of colonial 
days he might make the development 
scheme a success. The hired over-seer or 
the paid employee is not as deeply inter- 
ested in the enterprise as the pioneer in his 
own undertaking. There is not the same 
careful planning, painstaking care, and 
daily toil, that the small owner gives his 
land whereon he expects to live and die. 
Soil and climate are often unadapted to 
the kind of fruit grown. Even if soil and 
climate are congenial and great crops are 

[ 189 1 



SAVING AND INVESTING MONEY 

raised, the distance from market eats up 
all profits. Freight rates are prohibitive, 
and delays in transportation cause much 
loss. Five hundred men lose money on 
development schemes where one makes 
money. 

Unless you have accumulated a com- 
petence, and have money far above your 
daily needs, keep out of mining schemes, 
oil promotion schemes, and far distant land 
reclaiming and fruit planting schemes. If 
you conclude to invest your surplus, figure 
first on what your chances are of losing 
long before figuring on what you may 
make. Your chances are more than six- 
teen to one for losing. 

7. Patent rights and new and untried 
manufacturing schemes are nearly always 
speculative. Few patentees ever make 
much out of their patents by manufactur- 
ing the articles. Marketing a product is 
often a far bigger task than manufactur- 
ing it. Hundreds of patents are bought 
and shelved by established industries to 
prevent possible competition. It may be 
wrong, but the fact remains that it is done. 
You should face this possibility before 
spending your money. Not one manufact- 
urer in ten makes a hit financially. A 
few may eke out an existence. A small 
percentage make a marked success. 

Four things are necessary to make a 
success with a factory, and put it on a 
permanent paying basis. 
[ 190] 



CAUTIONS 

1. Machinery and mechanical ability 
to produce a product that will compete in 
price and construction with any competi- 
tive articles. 

2. Organizing and financing ability to 
secure capital to build and equip this fac- 
tory. 

3. Selling ability to market the prod- 
uct of the factory at a profit. It is after 
all the salesman who keeps the fires going 
in the factory's furnace. If the product 
can be sold at a good clear profit, the fac- 
tory end will meet the emergency. When 
warehouses and store rooms are filled with 
material without a market is the time 
when money is quickly lost and invest- 
ments do not pay dividends. 

4. Producing ability to control and 
manage labor to get contentment, good 
will, and the best work out of each em- 
ployee. This will give you a force of men 
who may be depended upon to give you a 
good product and to rally to the emer- 
gency in case extra orders must be handled 
quickly to meet urgent contracts. 

Before investing your means in a new 
and untried manufacturing concern study 
these four requisites in the men and man- 
agers with whom you must deal. Can they 
meet these four conditions? Is there a 
happy combination of producing ability 
and selling ability? Will the force stick 
to the job? Are they loyal enough to 
make a long run with the firm, or are the 

[ 191 ] 



SAVING AND INVESTING MONEY 

most essential ones willing to quit you at 
any time for a few dollars more on the 
month from some other firm? If some of 
them desert, will it be possible to replace 
them with other men as good or better 
than those who are leaving? Will one or 
two desertions kill the enterprise? One 
of the plans of older firms when a com- 
petitor springs up is to steal the essential 
men out of the enterprise by paying larger 
salaries or offering extra inducements. 
New firms must expect this. Think over 
these points before investing your money 
in new enterprises. Then consider the 
nature of the product. Is it one that will 
meet with ready sale or is it a product 
that must create a demand for itself ? The 
first may meet with good success and pay 
dividends from the very first. If a demand 
must first be created, it may require years 
of patient advertising before dividends are 
in sight. What are the chances for close 
competition? Is the product a necessity 
or a luxury? If it is a luxury, is it one 
that will appeal to the popular fancy? 
Much depends upon the answer to these 
points. 

Such questioning is not intended to dis- 
courage investments in all new enterprises 
but to get you to enter them with your 
eyes open. It is better to stop long enough 
to study the conditions before your money 
is invested than after. Your savings are 
to be carefully guarded. If you are in- 

[ 192 } 



CAUTIONS 

vesting a surplus over and above your in- 
come needs, you may risk more. Too often 
the over sanguine will invest their last 
dollar in a losing enterprise, listening only 
to the fluent talk of the experienced or- 
ganizer who is not placing a cent of his 
own money into the concern. The honeyed 
words and arguments of the organizer de- 
rive their sweetness from the prospect of 
big commissions for organizing rather 
than from zeal in future dividends to be 
made to the investing stockholders. 

8. Each new invention of world im- 
portance is followed by a crop of specula- 
tive enterprises, fostered by professional 
organizers, and feeding on that great crop 
of investment suckers of which it is said 
a new one is born every minute. They 
play upon the name and the fame of the 
new invention, skillfully wording their 
circulars until only the experienced and 
thoughtful can detect that it is bogus. 
They work into their circular the greater 
part of the title of world renowned firms. 
To the uninitiated it would seem that it 
was a new enterprise financed and backed 
by these responsible companies. These 
organizers advertise and circularize among 
salaried men and women and fish for the 
get-rich-quick hopefuls. Sometimes they 
maintain magnificent offices in costly 
buildings without having a dollar of legiti- 
mate assets. They depend day by day 
upon the stock sales to meet current ex- 

[ 193 ] 



SAVING AND INVESTING MONEY 

penses. They seek and find victims enough 
and fleece them sufficiently to pay big 
salaries and office expenses. When the 
postal authorities get wise to their frau- 
dulent schemes they slip out of criminal 
prosecution upon well planned technical 
grounds, duck a few months, and spring 
up again, under a new title and in another 
city. It is often the same bunch and the 
same fleecing of the innocents, circulariz- 
ing former victims again when new ones 
prove scarce. A fifteen minute confidential 
talk with his banker would nine times out 
of ten save the innocent investor from be- 
ing fleeced. 

9. Investments in new and competitive 
mail order and mercantile firm stock is 
usually risky. Because Sears-Roebuck and 
Company, Montgomery Ward, and others 
of a generation ago made a gigantic suc- 
cess in new and better ways of selling to 
the public, it does not follow that every 
copier of these firms is going to duplicate 
their success in competition with them. 
Less than ten years ago thousands of dol- 
lars of stock of such an organization was 
sold among preachers, teachers and sala- 
ried men and small investors at one-hun- 
dred-twenty-five. The chief argument in 
selling the stock was the wonderful suc- 
cess of two or three great mail order firms 
whose names were household words in 
every hamlet in the land. The salesman 
promised thirty-five percent profit at a cost 
[ 194] 



CAUTIONS 

of not more than ten percent handling ex- 
penses, capital to be turned twice a year. 
$2500 invested would insure you $100 a 
month dividend as long as you lived, while 
the stock itself would soon quadruple in 
value. The strangest part of it was the 
large number of sensible persons who 
would listen to and swallow such dope. 
They did not see that well established 
houses doing the same kind of business 
would cut these gigantic profits before 
they would let new competition grow up 
about them. They did not see the value 
and prestige of years of faithful service, 
advertising that made established firms 
known in every civilized country of the 
world, and back of them ample capital to 
extend their business. The new firm, com- 
peting along the same lines, and following 
the same established track, would find 
breakers ahead before dividends were in 
sight. Less than a year later this same 
stock was selling at sixty instead of one- 
hundred-twenty-five, and two years after 
it w r as closed out paying back through the 
receiver's hands less than twenty cents on 
the dollar. 

10. Town lot speculators harvest 
bountiful crops each year by shearing the 
lambs. Hundreds of lots were sold on 
monthly payments some years ago in a 
southern city. Maps showed their location 
a certain number of blocks north and east 
of the University of Chicago. Pictures of 

[ 1^5 J 



SAVING AND INVESTING MONEY 

great apartment houses and business 
buildings constructed or in the course of 
construction along the old Midway of 
World Fair fame were shown. These va- 
cant lots were guaranteed level and unim- 
proved. As soon as they were drained the 
buyer was assured the great city of Chi- 
cago would cover them with buildings as 
good as those shown along Midway. Great 
fortunes were in reach of the quick buyer. 
Lists of millionaires were shown who had 
received their start by investment in Chi- 
cago real estate. Under the spell of the 
rapid fire salesman you could feel yourself 
a millionaire in the making. Sales were 
quick and fast. A cash payment was made. 
The balance was to be paid at a local real 
estate office in monthly installments. A 
good bonus was offered for advance pay- 
ments of the monthly installments. A year 
or more went by. Many monthly payments 
had been made and several additional 
notes lifted. Deferred notes had been 
cashed out in a number of cases or as- 
signed as collateral. It chanced that one 
of the victims visiting Chicago on other 
business took time to hunt up his lot. To 
his utter surprise, it, like all the rest, was 
a mile or two out in Lake Michigan. Per- 
haps the agent was truthful in saying the 
great city of Chicago would cover these 
lots with business blocks as soon as they 
were properly drained and improved. 
Many men have made money in handling 

[196] 



CAUTIONS 

vacant lots. The lots were well chosen. 
They lay in the natural line of development 
of thrifty towns and cities. Many times 
they were subdivisions, bought when the 
land was cheap, farmed or gardened until 
the city was ready to absorb them. 

Many men have lost money in vacant 
lots. The city did not grow as was ex- 
pected when he bought the lot. Some 
boomer had reaped all the profit before he 
sold it. A lot is usually a good investment 
if it can be made to pay interest and taxes 
while the city is growing toward it. If 
you buy an empty lot and improve it and 
put it to earning soon after, it is usually a 
good investment. It should not wait too 
long before it pays you a dividend. When 
you buy a vacant lot and do not expect to 
improve it, you are waiting for some one 
to come along and pay you more for it 
than you would be willing to pay for it. 
While you are waiting the money you have 
invested is costing you interest either di- 
rectly or indirectly. If the lot cost you a 
thousand dollars the interest on your 
money is worth sixty dollars a year. Your 
taxes and other necessary expense is 
twenty dollars more. If you must wait five 
years for the other fellow to buy it and he 
pays you fifteen hundred dollars for it, you 
have cleared less than fifty dollars more 
than if you had kept the money in good 
six percent securities. If you wait longer 
to get the fifteen hundred you clear less. 

[197] 



SAVING AND INVESTING MONEY 

Too often the earning value of your in- 
vestment is forgotten, expenses are not 
counted, and you conclude you made five 
hundred dollars in just a little while on an 
investment of a thousand. You pat your- 
self on the back for your good fortune, 
when in truth you have not more than the 
usual rate of income. 

The man who makes money on vacant 
lots is the one who turns them often. He 
makes money as a salesman and not as an 
investor. He is a merchant, dealing in lots 
the same as another merchant deals in 
hardware or machinery. His profits come 
from turning his money at a profit rather 
than from earnings on investments. Men 
w T ith money enough to take risks often 
speculate in vacant lots and make money 
by it. They study the direction and growth 
of a city and buy on the outskirts in the 
line of development. They get early knowl- 
edge of great factories or improvements 
to be made, and buy before others catch 
on. However, these men understand that 
there is a strong element of speculation in 
their dealing and enter it with their eyes 
open. They expect big profits and if they 
see the tide turning against them they un- 
load as quickly as possible with as little 
loss and try it over again elsewhere. 

The buying of vacant city lots, often 

located miles away from the center of 

population, on the monthly payment plan 

is nothing short of speculation. The small 

I 198] 



CAUTIONS 

investor can never afford to jeopardize his 
savings in pure speculations. Even though 
you buy where you are assured there will 
be neither interest or taxes during the 
time of your monthly payments, you may 
rest assured that interest, taxes, risk, and 
profits, are all included in the price you 
pay for the lot. These were all considered 
and properly apportioned when the origi- 
nal plat w r as thrown on the market. 

11. Bucket shop buying, race track 
gambling, bond and grain speculations are 
not investments. They are gambles pure 
and simple. The small investor who has 
no more business sense than to bite at 
these deserves to lose. If the gambling 
instinct is in him in such a degree that he 
can not refrain from it, it is only a ques- 
tion of time until he will lose. He will be 
down and out by and by, a few months 
more or less will make little difference to 
him or those depending upon him. Buy- 
ing where margins only are put up, and 
where prices are manipulated by experts 
in the business is no place for a man's 
hard earned saving, and yet, many a fami- 
ly have come to want from just such deals. 
Often the blame is attributed to the machi- 
nations of a Wall Street market. In truth 
the victim has been dealing with a side 
alley gambler running an illegal bucket 
shop. He trusted his savings to a gam- 
bler's care and when he returned they were 
gone. To lend respectability to his creduli- 

199 



SAVING AND INVESTING MONEY 

ty he lets his friends understand quietly 
that he has lost heavily on 'Change. They 
sympathize with him and pour vials of 
wrath on the evils of Wall Street. 

Many lambs are shorn on Wall Street. 
It is not a place for the small investor. 
Wall Street is typical of both good and 
evil. It is necessary to have a legitimate 
bond and grain market. They are neces- 
sary to modern business and finance. They 
are found in every city of any size in the 
world. Lambs can not flock about any of 
them with impunity. But many of the 
noisiest victims have dealt with profes- 
sional gamblers. The small investor who 
risks his savings in grain or bond specula- 
tion should recognize to begin with, that 
he is a sucker and the professionals are 
fishing for him and that when they catch 
him they will "bump his head." They may 
bait him for a season until he is ripe for a 
final catch or they may bait him for a 
time as toll for others. Flushed with his 
first few easy hauls he is sure to toll others 
to the killing. 

If you want to deal in grain or stock buy 
through a reliable banking house or broker 
of established reputation, but until you are 
able to live on easy street, and do not de- 
pend upon the income from your savings 
for comfort or a livelihood, keep out of 
either legitimate or illegitimate bond and 
grain speculatoin bought on a margin. If 
you enter it, keep your risks to themselves. 

200 



CAUTIONS 

Expect to get caught sooner or later and 
pay the penalty without whining about it. 
Remember also that your first winnings 
may be your final downfall for the gam- 
bling habit once acquired is hard to quit. 
It is only the very very few that ever suc- 
ceed long in a purely speculative prosperi- 
ty. 

All wolves do not live on Wall Street. 
They are found in every community. 
Many able men of fairly good standing are 
willing to fleece the innocent at the first 
opportunity. On the other hand safe in- 
vestments with sure and conservative re- 
turns are in reach of every man with a 
small margin to invest. You can find them 
if you try. Your savings will grow. Your 
habits of thrift will bring you more pleas- 
ure than those of the spendthrift. Shun 
the speculative, seek the safe and con- 
servative, make each dollar work regularly 
at a steady job at reasonable rates, and 
you will find yourself growing in self-re- 
spect and a better citizen. 



201 ] 



WIfiTWN PRINTINt * LITHO. CO., RACINE, WIS. 



